Netflix The stock fell more than 9% on Thursday after quarterly reporting that was largely positive but left Wall Street disappointed and uncertain about key sources of income.
The sell-off in Netflix stock follows a 60% year-to-date rally, spurred by the rollout of the cheaper ad-supported plan and a crackdown on password sharing – both of which were supposed to hurt the streaming giant’s growth. stimulate.
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Netflix gave few details on those initiatives in its quarterly report on Wednesday, and second-quarter revenue fell short of expectations.
“I think people expected a lot more revenue growth in the third quarter, and that’s where the weakness was [average revenue per membership]said MoffettNathanson analyst Michael Nathanson.
Netflix’s average revenue per membership showed weakness in its most recent quarter, as the streamer focused on said sources of revenue rather than raising prices. The company removed its least expensive ad-free plan this week to push customers to opt for the cheaper ad plan instead.
CFO Spencer Neumann said on Wednesday’s earnings call that price increases were put on hold as the new sharing policy was rolled out. For advertising, he said, the company expects “gradual revenue growth,” adding “that this year is not expected to be a major contributor.”
The ad-supported plan, which launched late last year, has about 1.5 million subscribers signed up so far, a small fraction of the total number of subscribers, according to a report from The Information Wednesday.
Netflix executives declined to provide details about the ad-supported level during the company’s pre-recorded earnings call.
“Most of our revenue growth this year has come from volume growth from new paid memberships, and that is largely driven by our paid share rollout,” said Neumann. “It’s our primary revenue acceleration in the year, and we expect that impact … to continue over several quarters.”
But with uncertainty about how long it will take for monetization initiatives to gain a foothold, it’s difficult to predict Netflix’s revenue over the next two years, leaving the future murky, Wall Street analysts said.
“Buyside expectations are high,” Wells Fargo analyst Steven Cahall said in a note before Netflix reported results on Wednesday.
However, in a post-earnings report note, Cahall said that “patience is a virtue,” and he called on investors who were “too exuberant about paid sharing,” noting that revenue growth will take longer.
“It doesn’t happen overnight,” Netflix co-CEO Greg Peters said during Wednesday’s investor call.
Netflix forecasts revenue of $8.5 billion for the third quarter, up 7% year-over-year.
The streaming giant has outperformed its traditional media competitors, and the boost in subscriber growth showed its strength as another battle and preparation for a tumultuous rest of the year as they look for streaming gains and cope with the strikes of Hollywood actors and writers.
Netflix said Wednesday it added 5.9 million customers, but after last year’s first subscriber loss in a decade that sent its stock into a tailspin, the company said it would shift focus to revenue growth and forecasting.
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