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Netflix subscriber growth screeches to crawl, slowing more than expected

CNET logo CNET 10/20/2020 Joan E. Solsman
a person standing in front of a window: Enola Holmes was one of Netflix's most popular titles in the last quarter. Netflix © Provided by CNET Enola Holmes was one of Netflix's most popular titles in the last quarter. Netflix

Netflix added 2.2 million subscribers in the last quarter, a slowdown after starting the year with eye-popping growth during the coronavirus pandemic, a bump the company had predicted wouldn't last. 

Netflix, the world's dominant streaming-video subscription service, said subscribers rose by 2.2 million, to 195.15 million, between July and September, according to its Tuesday report for third-quarter results. 

That falls short of Netflix's July guidance to add 2.5 million new members. And analysts had been expecting an increase, with an average estimate of 3.4 million member additions, according to Thomson Reuters. 

Netlfix shares were down 4.8 percent, at $25.42 a share, after hours.

Netflix started the year by adding more customers in a single quarter than it ever had before, kicking off record growth in the first half as COVID-19 precautions devastated swaths of the out-of-home entertainment industry. With movie theaters shuttered, big-budget films pushed back to next year or later, sports only recently ratcheting back up, and concerts and theaters largely on hiatus, Netflix's domination of subscription streaming put it in prime position to attract still more members. 

Stranger Things star Millie Bobbie Brown targets a new role as youthful sleuth Enola Holmes. © Netflix

Stranger Things star Millie Bobbie Brown targets a new role as youthful sleuth Enola Holmes.

But Netflix had warned twice already that its growth early in the year was likely pulling forward new subscribers that it normally would've booked in the back half. 

Tuesday, the company said quarter-to-quarter fluctuations in its membership growth aren't "that meaningful" in the context of a massive shift to internet entertainment, which Netflix said "is still early and should provide us with many years of strong future growth." It also noted Tuesday that the pandemic continues to make projections "very uncertain" but that the company is hopeful its growth trends will smooth out to something more normal. 

During the pandemic, Netflix has had a natural advantage as an at-home entertainment option, but the company has also benefited from the binge-it-all-at-once release model it trailblazed. Netflix typically wraps its projects earlier than traditional TV studios do, since it needs to drop all episodes of a season at once, meaning it already had more of its gigantic production slate in the can before film and TV production largely shut down globally. As a result, Netflix still plans a steady cadence of new programming through 2020 and into next year. 

Netflix said Tuesday that it expects to be releasing more titles every quarter of 2021 compared with the year-earlier period. It said it's restarted production on some of its biggest titles, including season 4 of Stranger Things, action film Red Notice starring Dwayne Johnson, Gal Gadot and Ryan Reynolds, and the second season of The Witcher.

Looking ahead to the fourth quarter, Netflix expects to add 6 million streaming members overall. Analysts' consensus estimate was for Netflix to predict 6.5 million. Netflix also predicted $1.35 per share in earnings in the fourth quarter. On average, Wall Street analysts who track Netflix expected 96 cents.

In the latest period, in the US and Canada, its biggest single region, Netflix added 61,000 streaming customers, for a total of 67.11 million. In Europe, Middle East and Africa, the service increased members by 3.13 million, to 47.36. In Latin America, it added 1.49 million, to hit 29.38 million. And in the Asia Pacific region, subscribers climbed 1.54 million, to 14.49 million.

Overall, Netflix reported a third-quarter profit of $790 million, or $1.74 a share, compared with $665.2 million, or $1.47 a share, a year earlier. Revenue rose 23 percent, to $6.44 billion.

Analysts on average expected per-share profit of $2.13 -- compared with Netflix's guidance for $2.09 -- and $6.383 billion in revenue.

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