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Netflix Stock Drops Eight Percent

Netflix Stock Drops Eight PercentWhen Netflix announced that the growth of its U.S. subscribers in the months of July to September did not meet the internal expectations, the shares instantaneously dropped the following day. The issue of the subscriber growth including the growing competition among other streaming providers made the investors really anxious and caused Netflix stock to drop eight percent. On Wednesday, Netflix announced that for the third quarter this year, the company added 3.62 million new subscribers from around the globe which is actually higher than its own forecast of 3.55 million. All in all, there are 69 million subscribers of Netflix.

But then in the U.S., the subscriber growth is 880,000 which is below the expectations because the giant streaming provider forecasted about 1.15 million subscribers for the third quarter. The international subscriber growth for Netflix has reached 2.74 million which is actually higher that the 2.4 million forecast. According to Netflix, the drop in the U.S. subscribers is due to the fact that a lot of the customers acquired new chip-based credit and debit cards without updating their accounts.

According to chief financial officer David Wells, the current switch to chip cards will also be considered in the fourth quarter forecast of Netflix which is 1.65 million latest U.S. subscribers. In a conference call with the press on Wednesday, Wells said “We don’t think, though, that it really affects our addressable market size of 60 million to 90 million (in the U.S.).”

When Netflix stock dropped eight percent, it drew different responses from analysts. “We think it is far more plausible that a combination of price increase and saturation drove churn,” said Wedbush Equity Research analysts. The growth of U.S. subscribers may have slowed down but “We believe Netflix shares deserve a premium given the company’s position as the most powerful global distributor of professional media content. We maintain our Buy rating and $125 target price and remain confident in long-term earnings power, driven by upside to long-term international margins,” said Anthony DiClemente, an analyst from Nomura.

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