Reed Hastings, the chief executive of Netflix (NFLX), has said he’s worried by investors’ overwrought enthusiasm for his company’s stock. Well, he must be feeling a bit more comfortable now. Netflix shares tanked after the markets closed on Wednesday, losing more than 25 percent of their value as investors reacted to the company’s revelation that it brought in fewer new subscribers than expected.
Netflix added just under 1 million new subscribers in the U.S., and about 2 million in other countries. Both of those were below expectations. Hastings said the slowing growth was due to Netflix’s recent price hike (PDF), and that the company underestimated the impact of the price hikes because the second season of Orange Is the New Black proved a strong enough incentive to keep them paying last quarter.
If subscribers really are joining and leaving based on specific shows, it’ll be a lot tougher to predict short-term fluctuations in the subscriber base. “For the prior three quarters, we under-forecasted membership growth,” wrote Hastings, who personally lost more than $100 million (on paper) in an hour today. “This quarter we over-forecasted membership growth. We’ll continue to give you our internal forecast for the current quarter, and it will be high some of the time and low other times.” Netflix expects to add 1.85 million subscribers in the U.S. and 2.15 million subscribers internationally next quarter.
Investors may also be wary of Netflix given the announcement earlier in the day that HBO will introduce its own standalone streaming service next year. Hastings dismissed the threat, saying that he has seen HBO as the company’s main competitor for several years already. “It was inevitable and sensible that they would eventually offer their service as a standalone application,” he said. “Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we both prosper as consumers move to Internet TV.”
HBO hasn’t said anything about the shape or price of its streaming product. But if it’s priced to compete with Netflix, cord-cutters could easily purchase both services and still pay significantly less than they would have for cable.
