Netflix stock drops despite adding more than 10 million new subscribers

Netflix stock drops despite adding more than 10 million new subscribers

This week, Netflix has reported a surge in its subscribers. However, the stock price in off-hours trading dropped over 9% amid slow growth concerns.

This week alone, Netflix has announced a lot of upcoming shows such as Project Power starring Jamie Foxx. In addition, they also unveiled anime collaborations such as Samurai Rabbit and Capcom’s action-RPG Dragon’s Dogma.

With a lot of shows in store for its subscribers amid the coronavirus pandemic, it’s no surprise that Netflix has shown a massive subscriber growth in the first half of the year.

In a letter to its shareholders, the streaming giant showed its net income in the first half earning US$26 million [AU$ 37 million] compared to the prior year of $12 million.

However, after the earnings report was released after trading hours, the stock went as low as 12%, per CNBC.

The drop was most likely caused by the projection by most of the analysts which were less than they were expecting. Here’s a breakdown compiled by CNBC:

  • Earnings per share (EPS): $1.59 vs. $1.81 expected, according to Refinitiv survey of analysts
  • Revenue: $6.15 billion vs. $6.08 billion, according to Refinitiv
  • Global paid net subscriber additions: 10.09 million vs. 8.26 million expected, according to FactSet

Ted Sarandos becomes co-CEO, slow Q3 ahead

CEO Reed Hastings has also announced the appointment of Ted Sarandos, the chief content officer of Netflix, as the co-CEO. In addition, Chief Product Officer Greg Peters will take on the added position of being a chief operating officer.

Netflix is also forecasting slow third-quarter growth with a prediction of 2.5 million net subscriber additions for the third quarter. However, they are expecting free cash flow for the full year 2020 to be breakeven to positive, compared with their prior expectation for -$1 billion or better due to the pause in production from the pandemic.

Netflix stock drops despite adding more than 10 million new subscribers

Netflix has also announced the release of The Old Guard this month in the letter to its shareholders. In addition, season 2 of The Umbrella Academy is also launching this month followed by The Kissing Booth 2.

Netflix faces tough competition ahead

Although competitors like Apple, Disney, and Amazon are pushing to create value out of their streaming services, Netflix remains to be focused on its strategy to improve its services and content every quarter.

They even praised TikTok for its astounding growth putting themselves in the map for internet entertainment. However, TikTok got recently banned in the U.S. and India but there are reports that Facebook might acquire the company soon.

Investors shall see if the upcoming Netflix shows would beat slow expectations moving forward.

Featured image courtesy of Jade87/Pixabay

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