Netflix shares followed what has become the norm following the company’s earnings releases, plummeting more than 11% in early trading today as investors pulled back following weak subscriber guidance during its Q1 earnings call Monday.
Netflix beat Wall Street expectations for subscriber adds in the first quarter, picking up 6.7 million subs to reach its customer base to more than 81.5 million, and also beat expectation for earnings, with net income of $28 million, or 6 cents per share. The company reported revenue of $1.96 billion missing – barely – on revenue expectations of $1.97 billion.
But Netflix said it expects to add just 2.5 million subscribers in Q2, only 500,000 of them in its home market, which is 86,000 fewer than analysts expected.
Netflix will be increasing the price of some existing customers’ service by $2 this year, which it expects will lead to “a modest” number of grandfathered customers churning in the quarter. Netfix also noted that growth in the international market was proving tougher.
But, in a conference call with analysts, CEO Reed Hastings said, “Over the next couple years as we further localize, we’ll be able to see more opportunity.”
And, he said, it continues to explore the possibility of launching in China, one of only a few countries the streamer isn’t in. If it does deploy into the massive market, Hastings said it would have only a small impact on expenses for the year.
Despite softer subscriber gains, Hastings was upbeat, saying during the earnings call that, “The only inhibitor in our growth is how great is our service.”
“Can we make it so there’s never buffering? So it always starts up instantly? So the recommendations are incredible and the content is exciting? If we can do all that, we’ll continue to grow globally even though HBO, DISH and the others are also growing. That doesn’t take away from us.”
Netflix’s chief SVOD competitor, Amazon, Monday announced it planned to offer its Prime Instant Video service on a stand alone basis for $8.99 a month, a dollar cheaper than Netflix’s main offering.
Hastings said the move was “all part of the natural evolution from linear TV to Internet TV,” adding, “It’s natural that everybody is coming in as they realize that the future is Internet TV.”
During the call, Chief Content Officer Ted Sarandos reiterated that Netflix had “no interest in live sports currently.”
The company also said it planned to up its $5 billion spend on content this year to $6 billion in 2017.
When asked if the company had considered any mergers of acquisitions, perhaps of Starz of Paramount, Hastings said it was unlikely.
“In 15 years we’ve been public and 20 years in existence, we’ve done no M&A,” Hastings said. “That probably speaks for itself.”