On Wednesday, Netflix shares dived 25 percent by the time the market had closed. The hit came abruptly, especially since the company had increased their worth this year by over 20 percent. In any case, Wednesday morning’s dive in the market was a result of Netflix’s underestimation of projected new subscriber figures.
The company had projected to shareholders that they would garner an additional 3.69 million subscribers over a three-month period, ending at the beginning of October. Netflix still gained subscribers during this time, however, but only about three million. The company released a letter to their shareholders, stating that they had consistently underestimated growth in the previous three-quarters, but overestimated it for this one. They promised to project their figures more modestly in the future in order to eliminate the issue.
In their released statement, Netflix also emphasized that the issue may have resulted from their recent increase in prices when they increased the subscription rate by one dollar for new customers. The price increase may not have been adequately factored into the failed projection, since an increase is directly correlated with slower growth. Regardless, the streaming giant remained adamant in their statement that their customers are as happy as ever. They also remarked that their competitors did not play a role in the situation, and they are still dominating their market.
When Netflix’s shares dived 25 percent Wednesday morning, the company also stated that the initial release of Orange Is The New Black likely affected the projection as well. After the release of the second season of the critically acclaimed, Netflix-produced show, new subscriptions increased. Since the show’s initial fanfare has petered out, the influx of subscribers has as well.
On Wednesday HBO also announced they would be moving their HBO Go service to a standalone subscription, posing an additional threat to Netflix’s longevity. When addressing the subject, Netflix denied that this new announcement will have any negative effect on their viewership because HBO and Netflix offer drastically different content. It makes more sense that consumers will seek out both for their merits rather than one or the other. In recent years, the push towards internet-based television has been stronger than ever, and as a result, competitors in the field all hold the rights to different content. Considering the relatively inexpensive nature of the subscriptions, consumers could elect to subscribe to numerous services for a fraction of the cost of cable.
Despite the 25 percent dive of Netflix’s shares, the company is still thriving and is not in any immediate danger. The service has become available in a wide variety of ever-expanding countries, recently arriving in more parts of Europe last July. Despite their increase in prices, the company expects to continue their upward trend in subscriptions. The dip on Wednesday was because of the company falling short of their projections, not because of a lack of positive increase in viewers. With more conservative projections promised for the future, the service does not expect a similar decrease any time soon.
By Brett Stewart