Netflix share price: Unexpected growth slowdown following price increase sends shares plummeting

Margi Murphy

18 July 2019 at 3:09 am

Netflix promised that its next set of results, which will include the launch of the third series of Stranger Things which stars Millie Bobby Brown, will be more promising - AFP

Netflix’s shares fell by more than 10pc after the streaming service's run of stellar user growth came to an abrupt end on Wednesday evening.

The drop comes as the company mourns the loss of popular TV series Friends and the American adaptation of The Office, which big name broadcasters recently said they would move to their own streaming services in the next year.

Netflix's share price dropped after revealing that customers in its largest market, the US, were cancelling subscriptions after a recent price hike, confirming concerns that customers would not be willing to pay more for the service in an increasingly crowded streaming market.

Netflix said it had added 2.7m new subscribers in the quarter, well below a forecast of 5m. In the US, where Netflix this year hiked prices as high as 18pc, subscriber numbers fell by 126,000.

Investors had embraced recent news of the price hikes as evidence that customers were so attached to Netflix that few would cancel in response, justifying heavy investment in original programming like Stranger Things, Bird Box and The Crown.

Revenues in the second quarter of 2019 reached $4.9bn (£3.9bn), up slightly but a slower rate of growth than investors had become used to. Its cash burn also hit record levels as the company continued to spend heavily on commissioning new material.

Netflix faces a glut of rival streaming services in the coming months, with WarnerMedia, Apple and Disney laying their battle plans to launch new services in the next 12 months.

WarnerMedia and NBC Universal have said they plan to take back Friends and The Office respectively for their own services.

In a letter to investors Netflix partly blamed the slowdown on a "pull-forward effect" following its successful first months of the year, where it experienced 9.6m additional users.

"Netflix must diversify into new services and broaden its business model," said Paolo Pescatore, an analyst at PP Foresight.

"It cannot solely rely on annual price increases to grow revenue and reduce its burgeoning debt and content obligations. Big battles lie ahead and video represents a key area for the online and tech giants. It opens up new business models in advertising, subscription, transaction as well as others including merchandise."