Netflix Tumbles After Forecasting Slower Online Growth
April 23 (Bloomberg) -- Netflix Inc., the world's largest video-subscription service, said customer growth will slow after posting first-quarter gains that met analysts' estimates. The stock fell as much as 16 percent in extended trading.
Netflix, based in Los Gatos, California, added 1.74 million new U.S. online subscribers to reach 23.4 million, the company said today on its website. That matched the average of nine analysts' estimates compiled by Bloomberg. Second-quarter growth will slow by at least half and probably more.
Chief Executive Officer Reed Hastings, presiding over the first loss since early 2005, cited higher seasonal customer turnover for the slowdown. The company is racing to add viewers to confront competition from Comcast Corp.'s StreamPix and Verizon Communication Inc.'s online venture with Coinstar Inc.'s Redbox. While Netflix may post a second-quarter profit, investors are focused on subscriber additions.
"They guided to subscriber growth dropping a ton quarter- over-quarter, and some people think as soon as growth stops, this thing's over," said Michael Pachter, a Wedbush Securities Inc. analyst in Los Angeles who has an underperform or sell rating on the stock. "They are saying, 'We're not going to grow very much and instead we're going to focus on making money.'"
Hastings said the entry into the U.K. has been well- received and that Netflix plans to enter an additional European market this year. He halted expansion plans in October, after losing 800,000 subscribers following a price increase and an aborted plan to spin off the DVD business.
Spending Outlook
"We're growing content spending and content offerings very aggressively going forward, and revenue is growing faster than that," Hastings said.
The company set an all-time streaming record in the first quarter, with customers on average watching at least one hour daily, Hastings said.
For the second quarter, domestic online users will increase to between 23.6 million and 24.2 million, the company said, suggesting growth of 200,000 to 800,000. Analysts were predicting a gain of 781,000 online users. DVD users will shrink by 740,000 to 1.14 million, declining to as little as 8.95 million, Netflix said. Analysts had forecast a drop of 623,000.
Second-Quarter Net
This quarter may range from a loss of as much as $6 million, or 10 cents a share, to a profit of $8 million, or 14 cents, on sales of $873 million to $895 million, Netflix said.
"Our domestic business is growing in profitability, and then we're investing that in more and more international expansion," Hastings said in an interview. The company has "tons of deals" it's negotiating in the U.S. and abroad that could increase content costs in the next year, he said.
Netflix fell as much as 16 percent to $85.37 in extended trading. The stock lost 4 percent to $101.84 at the close in New York and has retreated 66 percent from the all-time closing high of $298.73 set in July 2011.
Netflix posted a first-quarter net loss of $4.58 million, or 8 cents a share, the result of costs for its Latin American and U.K. expansion. That was smaller than the $9 million to $27 million loss the company predicted in January. Sales rose 21 percent to $869.8 million, beating the $865.5 million average of 27 analysts' estimates.
Analysts and investors say Netflix's domestic streaming business may stall this year, at a time when the company needs additional revenue to stay ahead of new competitors and counter unprofitable growth overseas, including continued losses in Latin America.
Netflix has commitments to spend $3.9 billion over the next five years on films and TV shows, according to filings. The company has no plans to sell or spin off its DVD business, Hastings said.
He also confirmed the women's prison comedy "Orange is the New Black" will be the company's fifth original program.
To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net
To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net
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