Horror for Netflix as it misses subscriber targets

Netflix shares plunge in after-hours trade after forecast miss

The reason behind this is that Netflix is now has a free cash flow of negative $559 million meaning they once again spent more in the second quarter of 2018 than they made.

Despite the weak quarter, and a lowered outlook for the third quarter, Emarketer expects Netflix to remain the clear leader among video streaming services in the US.

The company's shares fell more than 13 percent shortly after the start of trading on Tuesday before rebounding, with the stock trading down almost 6 percent as of 2:40 p.m.

But subscriber growth is what Wall Street cares most about. If the stock plunges on the same trajectory during Tuesday's regular trading session, it will be the steepest drop in almost four years.

Netflix said operating margins would be narrower than previously expected because of the rapid strengthening of the USA dollar, which appreciated by more than 5 percent against major trading partners' currencies in the second quarter.


All told, Netflix over the last three months added 670,000 new subscribers in the United States and 4.47 million new subscribers overseas. This time, for Netflix, it was a negative - membership growth seems to have stalled. Earnings grew 32 percent from a year ago to $384 million, or 85 cents per share.

The Netflix logo is seen on their office in Hollywood, Los Angeles, California, U.S. July 16, 2018. Revenue climbed 6 percent to $3.9 billion. Earnings per share of $0.85 topped estimates of $0.79, but revenue of $3.91 billion fell short of the expected $3.94 billion.

Bringing in more subscribers and money is vital for Netflix because it expects to keep spending more on exclusive TV shows and movies to try to stand out from rivals. "They also raised concerns as competitors like Amazon ramp up their streaming efforts, while others like Disney and AT&T are prepared to invest in more digital content. Netflix is expected to spend up to $8 billion this year on 700 original series".

In the letter to shareholders, Netflix said it expected more competition from global players including ProSiebenSat 1 Media in Germany and on-demand service Salto in France.

At the same time, Netflix faces growing competition. And Walt Disney is hoping to close on a $71 billion deal to buy prized entertainment franchises from 21st Century Fox to feed into a video streaming service Disney will debut next year.

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