Why Netflix is Seeing a Change in Customer Growth

Why Netflix is Seeing a Change in Customer Growth
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Netflix Inc. said it added fewer video streaming subscribers than expected from April through June as some customers canceled the service ahead of a price increase, and the company's shares fell 16 percent.

The dominant subscription video service on Monday also forecast slower-than-expected growth in U.S. and international markets in the current quarter.

"We are growing, but not as fast as we would like or have been," the company said in its quarterly letter to shareholders.

Netflix, which distributes popular original shows such as "Orange is the New Black" and "House of Cards" along with movies and TV shows from major Hollywood studios, signed up 1.7 million new customers in the quarter that ended in June. It had projected 2.5 million.

The company has been phasing in price hikes for existing customers by $1 or $2 per month. Cancellations "ticked up slightly and unexpectedly" in early April amid press coverage about the coming increases, the Netflix letter said.

For the current quarter, the company predicted it will add 300,000 U.S. subscribers and 2 million in markets outside the United States. That includes "an impact from the spectacle of the Olympics," the company said.

Analysts on average expect Netflix to sign up 774,000 new subscribers in the United States and 2.85 million in the international markets, according to research firm FactSet StreetAccount.

Netflix shares dropped to $84.40 in after-hours trading from a close of $98.81. The company is prone to large stock price swings as investors bet on the possible success of its mission to redefine television viewing around the world.

"The shares are down because their domestic subscriber growth slowed to a crawl ... and domestic profits fuel their international losses," said Wedbush Securities analyst Michael Pachter, who has an "underperform" rating on Netflix stock.

Netflix has launched in almost every country in the world. It now faces the task of adapting the service to different markets and cultures as competitors also rush in.

In the investor letter, Netflix said it continues to explore options for starting a service in China but added: "Unfortunately, this year the regulatory climate in China for our service has become more challenging," noting that officials in the country had shut down a Walt Disney Co. streaming service and an Apple Inc. movie offering.

The company is also increasing its spending on movie and TV content and is signing up more streaming deals as it faces competition from services like Hulu and Inc.'s Prime video.

In the June quarter, Netflix added 1.52 million subscribers in its international markets and 160,000 subscribers in the United States.

Netflix reported earnings per share of 9 cents, beating the 2 cents per share forecast by analysts polled by Thomson Reuters I/B/E/S. Revenue reached $1.8 billion for the quarter.

"The earnings upside was from lower spending on technology and marketing," Pachter said.

(Reporting by Rishika Sadam in Bengaluru; Editing by Saumyadeb Chakrabarty and Bernard Orr)

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