Netflix shares fall by 8%, gradual decrease in revenue
Netflix shares fell more than 8% Thursday after a quarterly revenues report that was largely positive but left Wall Street underwhelmed and unsure about crucial revenue drivers.
The sell-off in Netflix stocks follows a 60% year-to-date rally, prompted by the rollout of its more affordable, ad-supported plan and a crackdown on password sharing, which were supposed to drive growth for the streaming firm.
Netflix shares dip after quarterly earnings report:
In its quarterly report, Netflix offered several details on those initiatives Wednesday, and its second-quarter earnings fell short of anticipations.
“I think people expected a lot more revenue growth in the third quarter, plus there was the weakness in [average revenue per membership],” said analyst Michael Nathanson of MoffettNathanson.
Netflix’s average earnings per membership revealed weakness in the most recent quarter as the streamer concentrated on its said revenue drivers rather than increasing costs. The firm this week withdrew its least expensive, no-ads plan in a push for people to go for the cheaper ad plan instead.
Chief Financial Officer Spencer Neumann stated on Wednesday’s earnings call that cost increases were put on the back burner as the new sharing policy emerged. For promotion, he said, the business expects a “gradual revenue build,” continuing “that’s not expected to be a big contributor this year.”
The ad-supported plan released late last year has signed up nearly 1.5 million users, a small percentage of overall subscribers, according to a report from The Information on Wednesday.
Netflix executives refused to provide details on the ad-supported tier on the firm’s pre-taped earnings call.
“Most of our revenue growth this year is from growth in volume through new paid memberships, and our paid sharing rollout largely drives that,” Neumann stated. “It is our primary revenue acceleration in the year, and we expect that impact … to build over several quarters.”
