Shares of video streaming giant Netflix, Inc. (NASDAQ:NFLX) are down over 25% in premarket trading on Thursday, October 16th. The downdraft in the stock comes on the heels of a poor third quarter earnings report wherein the firm noted it signed up substantially fewer subscribers than it had expected. The bad news comes just after HBO announced it was release a standalone, web-only version of HBO Go that would compete directly on Netflix.
Breakdown of Netflix earnings report
It wasn’t a total disaster for Netflix, as the firm did manage to add almost 3 million new users worldwide in the quarter, but the company had guided to 3.7 million new subscribers for the period. Analysts also pointed out the worrisome fact that growth in the U.S. fell year over year, reaching just 1 million net new signups, a big drop from 1.3 million in the third quarter last year.
Netflix, Inc. (NASDAQ:NFLX) claims that the $1 price hike in May, which raised the cost of a streaming subscription to to $8.99 per month is the main reason for the shortfall in subscribers. “As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago,” the company noted in a letter to shareholders. “Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US.”
Statement from Netflix CEO Hastings
In an interview on CNBC, Netflix, Inc. (NASDAQ:NFLX) chief executive Reed Hastings downplayed the firm’s 700,000 subscriber shortfall for last quarter.
“We get addicted sometimes to beating our own numbers. So, for the last three quarters we underestimated our growth and overperformed,” Hastings explained to CNBC. “This quarter, it was the other side.”
Hastings said it appeared the poor subscriber numbers appeared to be related to the firms $1 per month price increase in May.
Hastings was not shy about discussing the big industry news that HBO is planning to launch a rival streaming-only service in 2015. He made an analogy that not all analysts buy into, saying, “It’s exciting … we compete with them like baseball and football compete.”