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Netflix subscriber growth pummeled by sleepy release slate pre-Stranger Things

The company tops 150 million paid members but booked only about half the new subscribers predicted. It's also launching a cheap, mobile-only tier in India.

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Stranger Things latest season dropped right after the second-quarter closed. 

Netflix

Netflix still has Friends and The Office for now, but that didn't do its subscriber growth any favors in the latest quarter, when Netflix saw its US members drop for the first time in eight years. The streaming-video giant surpassed 150 million paying members globally in its second quarter, but the 2.7 million new subscribers it signed up worldwide were short of the 5 million it had forecast.

Shares sank 9.8 percent at $327.02 in early trading Thursday. Netflix also batted down rumors that it would start selling advertising to run alongside its shows and movies but confirmed it will launch a cheap, mobile-only tier in India. 

The company blamed the shortfall on a quiet release schedule during the second quarter, and it noted that regions facing a price increase rollout from earlier this year were hit a little harder than areas with stable pricing, according to a Wednesday letter to shareholders that reported the results. 

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The latest results also closed before the runaway popularity of Stranger Things, the company's retro sci-fi hit series, could lure subscribers with its third season. Netflix bragged last week that a record 40.7 million household accounts watched Stranger Things' latest season in the first four days after it dropped— more than any other film or series. (Netflix counts a household view after 70% of a single episode is watched.) But a full 18.2 million binge-watched the entire eight-episode season within four days of its July 4 release. 

Subscriber numbers

Netflix's growth comes as the media industry obsesses over streaming competitors planning to launch in the next year and swiping away popular licensed content from the service. Well-watched shows Friends and The Office are destined for services coming next year from AT&T's Time Warner and Comcast's NBCUniversal. Disney has already stopped funneling its blockbuster movies to Netflix, in anticipation of launching its own rival service, Disney Plus, in November. 

"Much of our domestic, and eventually global, Disney catalog, as well as Friends, The Office, and some other licensed content will wind down over the coming years," Netflix said, adding that the budget for those licenses could be used for its own original content. "From what we've seen in the past when we drop strong catalog content (Starz and Epix with Sony, Disney, and Paramount films, or 2nd run series from Fox, for example) our members shift over to enjoying our other great content."

In its results Wednesday, international subscriber base grew by 2.83 million paid members to 91.46 million, short of the 4.7 million additions the company predicted. In the US, membership shrank by130,000 members to 60.1 million, even though Netflix had predicted growth of 300,000.

Looking ahead, Netflix expects to add 800,000 streaming members in the US and 6.2 million internationally in the current quarter. Netflix also forecast $1.04 per share in earnings. 

No ads, cheaper tier

Netflix told investors to dismiss speculation that it would start running advertisements.

"When you read speculation that we are moving into selling advertising, be confident that this is false," the company wrote. "We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction."

The company nodded to the growing competitive landscape, pointing out that Disney, Apple, WarnerMedia, NBCU and other companies will start streaming services over the next year. "The competition for winning consumers' relaxation time is fierce for all companies and great for consumers," Netflix said.

But the company does plan to introduce a low-priced, mobile-only tier in India. "There's an opportunity to be able to broaden the access to the service," Greg Peters, Netflix chief product officer, said during a public video discussion later Wednesday. "That's clearly the motivator behind adding this mobile-tier offering, which is going to a lower price point in a market where the typical pay-TV package is under $5. We need to have a lower price offering to improve the accessibility."

Overall, Netflix reported a profit of $270.7 million, or 60 cents a share, compared with $384.4 million, or 85 cents a share, a year earlier. Revenue climbed 26 percent to $5.92 billion.

Analysts on average expected per-share profit of 56 cents -- a penny higher than Netflix's guidance -- and $4.93 billion in revenue.

Originally published July 17. 
Updated July 18: With cheap mobile tier in India and executive comment.