Netflix reported a huge increase in subscribers but its shares fell sharply after it forecast lower-than-expected growth in the current quarter.
The streaming giant added 10.1 million net subscribers in the second quarter, benefiting from stay-at-home orders that left people with few options for entertainment other than their televisions and devices.
The increase in subscribers was a second-quarter record for Netflix and beat analysts’ estimates of an 8.26 million gain. In the year-ago quarter, it added 2.7 million subscribers.
Netflix also said it earned $1.59 per share as revenue grew 24% to $6.15 billion. Analysts had expected earnings of $1.81 per share on revenue of $6.08 billion.
“There are a decent amount of people who have never been exposed to Netflix before, even though they’re the most used service, so when COVID hit, Netflix benefited from that growth,” Steve Nason, a senior media analyst at Parks Associates, told The Verge.
Noting that “growth is slowing as consumers get through the initial shock of Covid and social restrictions,” Netflix forecast 2.5 million subscriber additions for the third quarter, down from 6.8 million a year ago and well below analysts’ expectations of 5.27 million.
“We continue to view the quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long run adoption of internet entertainment which we believe provides us with many years of strong growth ahead,” the company said in a letter to shareholders.
But in after-hours trading Thursday, Netflix shares dipped 9.1% to $479.58. The stock had been one of the best performers in the S&P 500 this year, gaining 60% through Thursday’s close.
“It turns out, there are limits even for Netflix,” Barron’s said.
Netflix said it was focused on “continuing to improve the quality of our service and bringing new films and shows to people’s screens” and that, despite the pandemic, “our 2020 plans for launching original shows and films continue to be largely intact.”
“As questions loom over when film and TV production can kick off again, there’s a possibility that Netflix may have to hold back,” The Verge said.