Shares in video-streaming service Netflix Inc. (NFLX) plunged as much as 15% after the company announced that it attracted fewer subscribers than expected in the second quarter, raising concerns that the company is an investment bubble.
The shares fell after Netflix announced that it had added 5.2 million users last quarter, about a million fewer than it predicted. Its outlook for the current quarter also reflected a deceleration: The world’s largest paid online TV network expects to add 5 million customers in the current third quarter, a slower pace than a year ago.
Shareholders and analysts now have the job of weighing whether the slowdown is a blip or a longer-term problem. Netflix’s stock had more than doubled this year, with investors betting that the company will add tens of millions of customers around the world for years to come.
Rob Arnott, head of fund advisory firm Research Affiliates, said in a note to clients about Netflix: “They qualify as a bubble.”
The company’s stock fell as low as US$342 in extended trading, a decline that erased about US$25 billion in market value. However, Netflix executives expressed little concern on a call with analysts and investors, insisting their growth over the past 12 months has still exceeded expectations. Netflix fell short of its forecasts a couple years ago, a shortfall the company blamed at the time on the transition to chip-based credit cards.
One reason for the current shortfall may be a lack of content. Netflix released a thin slate of shows in the second quarter, relative to its typical output. It didn’t add additional seasons of its biggest hits, such as “Stranger Things,” nor did a new show become a major hit for the streaming service. Ever since Netflix released “House of Cards” in 2013, the company has credited new seasons of original series with luring customers.
