Netflix (NFLX) reported paid subscriber additions and guidance that sharply missed estimates, with subscriber growth decelerating more sharply than expected over the course of 2020 after a strong initial surge in sign-ups. Shares traded more than 5% lower after market close Tuesday afternoon.
Here were the main results from the report, compared to consensus estimates compiled by Bloomberg:
Q3 Revenue: $6.44 billion vs. $6.39 billion expected
Q3 Earnings per share: $1.74 vs. $2.13 expected
Q3 Paid streaming subscriber additions: 2.2 million vs. 3.3 million expected
The streaming giant missed even its own third-quarter new subscriber guidance, adding just 2.2 million new members versus the 2.5 million the company had expected over the summer. That represented a major step down from the record performance Netflix posted for the first half of the year: More than 10 million subscribers joined Netflix during the second quarter, and nearly 16 million paying users were brought on during the first. New subscribers from the Asia Pacific region were the largest contributors to Netflix’s overall growth during the third quarter, comprising 46% of global paid net additions.
“As we expected, growth has slowed with 2.2m paid net adds in Q3 vs. 6.8m in Q3’19. We think this is primarily due to our record first half results and the pull-forward effect we described in our April and July letters,” Netflix said in its investor update Tuesday afternoon. “In the first nine months of 2020, we added 28.1m paid memberships, which exceeds the 27.8m that we added for all of 2019.”
For the fourth quarter, Netflix said it sees global streaming paid net additions of 6.0 million, missing estimates for an increase of more than 6.5 million, and last year’s final-quarter net additions of 8.8 million.
“The state of the pandemic and its impact continues to make projections very uncertain, but as the world hopefully recovers in 2021, we would expect that our growth will revert back to levels similar to pre-COVID,” Netflix added in its statement. “In turn, we expect paid net adds are likely to be down year over year in the first half of 2021 as compared to the big spike in paid net adds we experienced in the first half of 2020.”
“We continue to view quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long run adoption of internet entertainment, which we believe is still early and should provide us with many years of strong future growth as we continue to improve our service,” the company said.
Netflix also underscored that it has kept existing users on its platform even as new subscribers came up short. The company said retention remained healthy and engagement per member household rose “solidly” year over year in the third quarter.
The company remains the leader in the crowded streaming space, with a total of more than 195 million members on the platform. That compares to 60.5 million paid subscribers to Disney’s (DIS) newer streaming platform Disney+ as of August, and 36.3 million subscribers to AT&T’s (T) HBO Max and HBO as of June.
In addition to concerns of decelerating growth, Netflix has also faced the specter of a lighter new content slate for 2021, with production this year disrupted by the coronavirus pandemic. For the quarter ending in September, Netflix’s release schedule was already somewhat lighter than in quarters prior, with “The Baby-Sitters Club,” “The Last Dance” and the second season of “The Umbrella Academy” among the highlights.
Netflix said Tuesday that it has already restarted production for some of its most-watched titles, and has picked back up production for the fourth season of “Stranger Things,” second season of “The Witcher” and action title “Red Notice.”
The company said it expects to that the number of originals launched on Netflix will be up year over year in every quarter of 2021.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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