Netflix price hike see’s shares fall 13%

Netflix, Inc. (NASDAQ:NFLX) today watched it’s shares plummet 13% as the company announced it had only added 1.7m subscribers worldwide in its Q2 update. Netflix had forecasted a growth of 2.5m members compared to the same time last year where they obtained 3.3m members.

As of June 2016, Netflix has 83m members worldwide, yet was only able to add 160,000 US subscribers. This was its lowest quarterly gain from the US market in almost 5 years. The company also added 1.7m new international customers compared to a forecast of 2.5m in April. International markets now make up 43% of Netflix’s overall subscribers.

The streaming service was also below sales targets ending Q2 with an operating income of $70m and a net income of $41m against a projected sum of $47m and $9m.

Netflix said:

“We are growing, but not as fast as we would like or have been. Disrupting a big market can be bumpy, but the opportunity ahead is as big as ever and we continue to improve every aspect of our business

Unfortunately, this year the regulatory climate in China for our service has become more challenging. Disney’s streaming service, launched in conjunction with Alibaba, was closed down, as was Apple’s movie offering. We continue to explore options and, in the meantime, have plenty of work to do in our newly opened markets”

Netflix said that the main reason for the drop in membership is due to a planned price hike that was announced in 2014. In May this year, customers were reminded that the new plans to increase the premium price of $7.99 by $2 will soon be imposed which led to a high wave of unsubscribes that ‘ticked up slightly and unexpectedly’

As a result of the higher prices, revenue for the Q2 rose 28% to $2.1bn yet this this could not prevent a fall in shareholders as the prospect of long term growth weakened. In response, Netflix said it expects to add 300,000 US subscribers alongside 2m new members oversea in the current quarter but acknowledges that Olympic coverage may hinder this process.

In reaction to the statement, Netflix shares fell 13% to $85.90 in after hours trading in the US.

At 9:15am EDT Netflix Inc traded at 85.33 – 13.49 (-13.67%)


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