Shares of Netflix Inc. (NASDAQ: NFLX) slumped 13.77% to $85.20 on Tuesday morning. The company announced its weakest subscriber expansion in three years on Monday after market close, as the stream video company suffered a rapid slowdown in subscriber growth in the U.S. and international.
Netflix added only 1.7 million new subscribers during the second quarter which ended June 30, approximately 50% of the 3.3 million subscribers from the same period the previous year. The slowdown development, for both international and U.S. subscribers, came in well below its forecast of 2.5 million new members.
The company explained that membership price increases for existing subscribers result to higher service cancellations and lead to the low than expectation financial results. In the United States, over half Netflix customers had been made contract under lower prices but will be phased into higher fees this year.
“Whatever the price is for something, people don’t like it to go up,” Chief Executive Reed Hastings said on a videoconference call with analysts. “We apologize for the volatility; I know it’s not easy on everyone,” he said. “The big picture is very much intact.”
According to the earnings announcement, Netflix reported the profit of $40.8 million, or earnings per share of $0.09, compared with $26.3 million, or earnings per share of $0.06 in the same quarter last year. However, some analysts pointed out the company’s financials as evidence which it would keep deliver on its plans in the long term.
“While results are softer than expected, I think the market is underappreciating acceleration in revenue,” Anthony DiClemente, an analyst with Nomura, said, “Netflix is transitioning from a story about net growth in subscribers to one of growth in revenue and margins. They continue to grow international over the long term, and nothing happens overnight.”