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Despite massive earnings, Netflix is struggling to attract new subscribers

Yoni Heisler

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Netflix released its earnings report for the June quarter and posted EPS of $0.60, a solid beat over initial estimates of $0.56. Revenue came in exactly where analysts expected, with the streaming giant generating $4.92 billion in revenue for the quarter gone by.

That notwithstanding, the chief metric analysts tend to judge Netflix on has always centered on the company’s ability to attract new subscribers. And from that vantage point, Netflix’s earnings for the quarter left quite a few investors disappointed.

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During the last quarter, Netflix attracted 2.7 million new subscribers. While the figure by itself may seem respectable, it’s a far cry from the 5 million subscribers Netflix initially told investors to expect. In the wake of Netflix’s earnings report, shares are trading down more than 10%.

Not to be deterred, Netflix remains confident that it can continue to attract new subscribers during the third quarter. Netflix’s letter to investors reads in part:

While our US paid membership was essentially flat in Q2, we expect it to return to more typical growth in Q3, and are seeing that in these early weeks of Q3. We forecast Q3 global paid net adds of 7.0m, up vs. 6.1m in Q3’18, with 0.8m in the US and 6.2m internationally. Our internal forecast still currently calls for annual global paid net adds to be up year over year.

As far as competition goes, Netflix’s letter to investors made a point of referencing the increasingly crowded landscape of streaming entities. Indeed, Netflix will see increased competition in the coming months from the likes of Disney, Apple, and an assortment of others. That notwithstanding, Netflix believes that its aversion to advertising helps it stand out from a crowded field:

We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.

As a point of interest, the company noted that its most recent Adam Sandler film, Murder Mystery, is the most-watched Sandler film to debut on Netflix.

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