Netflix shares had a sharp drop in value on Monday just after the company reported a much slower growth in subscribers than it had projected.
The company has been on a seemingly unstoppable rise for months now, outpacing its own expectations in terms of subscriber growth and biting off bigger and bigger chunks of the entertainment market. According to a report by The Hollywood Reporter, all that came to a boiling point this week when Netflix reported on its own performance in the second quarter of 2018.
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The streaming giant signed up 5.15 million new users in total this quarter. While it is nothing to scoff at, the figure is far lower than the 6.2 million they were predicting would get on board. Many who follow the industry know that Netflix can’t hope for many more users in the U.S., where it is nearing a saturation point. Still, there are vast international markets the company can go after, but it proved harder than executives thought.
Netflix reportedly hoped for about 5 million new subscribers in international markets. Instead, they secured a total of 4.47 million. In the U.S., they managed to pick up just 670,000 new users.
Still, the company is far from panicking. Reed Hastings, Netflix’s CEO, sent out a letter to shareholders assuring them that everything was fine. He called the quarter report “strong but not stellar,” and gave a more humble estimate of new subscribers. He hopes the service will pick up 5 million total subscribers in the third quarter — 4.35 million of them from overseas.
Hastings’ letter gave little explanation for the under-performance, which may have effected the drop in share prices. Netflix has been doing so well that it was bound to falter sooner or later, and without an explanation as to why this quarter was disappointing, shareholders likely assumed this was the first sign of a plateau.
At the end of the day, Netflix shares were reportedly still worth $400.48 each, though they dropped another 10 percent during after-hours trading on the Nasdaq. No matter how you look at it, that is still a monumental price considering that shares have risen more than 100% in value since 2018 began.
Currently, Netflix’s market cap is still above that of Disney. The streaming giant is sitting at $174 billion while Disney is hot on its heels at $164 billion. The companies are destined for all out war this time next year, when Disney will launch its own streaming service in an attempt to compete. Dominion over the world of binge-watching may be up for grabs.
