Shares of Netflix Inc., the world’s largest video-subscription service, fell the most in almost six months Tuesday after the company on Monday projected a slowdown in growth of U.S. streaming customers.
The shares tumbled 14 percent to $87.68 at the close in New York, the biggest decline since Oct. 25, when Netflix reported a loss in U.S. subscribers for the third quarter. The stock has retreated 71 percent from the all-time closing high of $298.73 set in July 2011.
Chief Executive Officer Reed Hastings, presiding over the company’s first loss since early 2005, cited higher seasonal customer turnover for the slowdown. The company is racing to add viewers to confront competition from Comcast Corp.’s StreamPix and Verizon Communication Inc.’s online venture with Coinstar Inc.’s Redbox. While Netflix may post a second-quarter profit, investors are focused on subscriber additions.
“They guided to subscriber growth dropping a ton quarter-over-quarter, and some people think as soon as growth stops, this thing’s over,” said Michael Pachter, a Wedbush Securities Inc. analyst in Los Angeles who has an underperform rating on the stock. “They are saying, ‘We’re not going to grow very much and instead we’re going to focus on making money.’”
Netflix will end the second quarter with 23.6 million to 24.2 million domestic online subscribers, up from 23.4 million on March 31, the Los Gatos, California-based company said Monday on its website. That suggests 200,000 to 800,000 user additions, down from 1.74 million in the first quarter.
Netflix posted a first-quarter net loss of $4.58 million, or 8 cents a share, the result of costs for its Latin American and U.K. expansion. That was smaller than the $9 million to $27 million loss the company predicted in January. Sales rose 21 percent to $869.8 million, beating the $865.5 million average of 27 analysts’ estimates.
U.S. subscriber growth met analysts’ projections in the first quarter. Hastings said the entry into the U.K. has been well-received and that Netflix plans to enter an additional European market this year. He halted expansion plans in October, after losing 800,000 subscribers following a price increase and an aborted plan to spin off the DVD business.
“We’re growing content spending and content offerings very aggressively going forward, and revenue is growing faster than that,” Hastings said.
The company set an all-time streaming record in the first quarter, with customers on average watching at least one hour daily, Hastings said.
Analysts were predicting a gain of 781,000 U.S. streaming accounts in the second quarter, above the 500,000 midpoint of Netflix’s forecast. DVD users will shrink between 740,000 and 1.14 million this period, to as little as 8.95 million, Netflix said. Analysts had forecast a drop of 623,000.
This quarter may range from a loss of as much as $6 million, or 10 cents a share, to a profit of $8 million, or 14 cents, on sales of $873 million to $895 million, Netflix said.
“Our domestic business is growing in profitability, and then we’re investing that in more and more international expansion,” Hastings said in an interview. The company has “tons of deals” it’s negotiating in the U.S. and abroad that could increase content costs in the next year, he said.
Analysts and investors say Netflix’s domestic streaming business may stall this year, at a time when the company needs additional revenue to stay ahead of new competitors and counter unprofitable growth overseas, including continued losses in Latin America.
Netflix has commitments to spend $3.9 billion over the next five years on films and TV shows, according to filings. The company has no plans to sell or spin off its DVD business, Hastings said.
He also confirmed the women’s prison comedy “Orange Is the New Black” will be the company’s fifth original program.
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