LOS ANGELES, July 19 (Reuters) – Streaming video pioneer Netflix ( NFLX.O ) disappointed Wall Street on Wednesday with second-quarter revenue that fell short of analyst estimates, sending shares tumbling nearly 9% in after-hours trading.
The revenue number, along with a weaker-than-expected forecast for third-quarter revenue, overshadowed the addition of 5.9 million new streaming customers from April to June and earnings that easily topped forecasts.
Shares of Netflix fell 8.9% after the results to $435.
Netflix has been looking for new ways to make money as streaming competition increases and it approaches market saturation in the US. The company launched a cheaper tier of advertising last November and began asking password borrowers to pay in a sweeping attack that rolled out in May.
The company said it expected revenue growth to accelerate in the second half of the year, adding that it aimed to continue creating compelling shows and movies, improve monetization, grow its video game business and improve user experience.
“While we have made steady progress this year, we have more work to do to accelerate our growth,” the company said in its quarterly letter to shareholders.
The company reported diluted earnings per share of $3.29 for the second quarter, ahead of the consensus forecast of $2.86 from analysts surveyed by Refinitiv.
Its nearly 6 million subscriber additions beat the 1.9 million that Wall Street expected. Netflix had a total of 238.4 million subscribers worldwide at the end of June.
Quarterly revenue rose 2.7% from a year earlier to $8.2 billion, missing analysts’ forecasts of $8.3 billion. The company estimates that turnover in the third quarter will reach 8.5 billion dollars. Wall Street had predicted $8.7 billion.
Analyst Craig Huber of Huber Research Partners said some shareholders may have become too bullish about Netflix’s level of advertising and the password crackdown.
“Some investors’ expectations for (the third quarter) got too far ahead of what looks like the reality of management’s guidance,” Huber said.
While the company added subscribers, it said average revenue per member fell 3% from a year earlier. That was partly because many of the new sign-ups came in countries where Netflix charges lower prices.
Netflix said that the level of advertising remained a small part of the member base and that current advertising revenue is not significant.
“We have a long way to go from where we are today to even get to 10% (of revenue),” Chief Financial Officer Spencer Neumann said in an interview with an analyst.
Pivotal Research Group analyst Jeffrey Wlodarczak attributed some of the stock slide after the results to investors selling to take profits. Netflix stock is up 62% this year, including over 8% this month.
Like its competitors, Netflix is struggling with a strike by tens of thousands of Hollywood actors and writers. The industrial action has forced many film and TV productions to shut down, although analysts say Netflix has an advantage because of its global output.
Netflix raised its 2023 free cash flow estimate to $5 billion, up from $3.5 billion, in part because it will spend less on content with discontinued productions.
Netflix co-CEO Ted Sarandos, who noted that he grew up in a union household and remembered the hardships of his father going on strike, said he hoped labor tensions would be resolved soon.
“Let me start by making something absolutely clear: This strike is not an outcome we wanted,” Sarandos said.
Reporting by Lisa Richwine and Dawn Chmielewski in Los Angeles; Additional reporting by Yuvraj Malik in Bengaluru; Editing by Deepa Babington and Chris Reese
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