The earnings report showed the company lost subscribers during its second quarter.
Last week, shares of Netflix tumbled after the company released a disappointing earnings report. Investors were expecting the company to continue to grow its subscriber base. Instead, Netflix lost subscribers during the second quarter.
The company did increase its international subscriber base by 2.7 million. Not bad but the company estimated it would gain 5 million international subscribers. And Netflix lost 130,000 U.S. subscribers.
Investors are becoming increasingly bearish about Netflix
The truth is, investors have been increasingly bearish when it comes to Netflix for most of 2019. Competition in the streaming market is increasing as both Disney and Apple prepare to launch their streaming services. And most recently, Netflix learned it will be losing two of its most popular shows.
Is the narrative around Netflix accurate or overblown? Only time will tell but here are a couple of things to consider before investing in the stock.
Netflix may hit a ceiling with its price increases
Part of the reason Netflix lost U.S. subscribers was that it attempted to raise its prices in select cities during the second quarter. The company raised its monthly fee from $11 per month to $13 per month.
The problem is, most streaming services cost roughly half of what Netflix is charging. Disney’s streaming service will cost roughly $7 per month and Hulu recently lowered its ad-supported content to $6 per month.
This will make it harder for Netflix to justify raising its prices in the coming years. If it does, the company may see many more subscribers jump ship.
The company’s content production should pick up
According to company executives, the second quarter was light on content for the company. Netflix is optimistic that it should pick up more subscribers during the third quarter thanks to a stronger content slate.
This is largely due to the release of new seasons of “Stranger Things” and “Orange Is the New Black.” And while Netflix will eventually lose “Friends,” “The Office,” and the rights to Disney movies, this won’t happen for at least another year.
Investors have every reason to expect that the company’s third-quarter results will be much better. The content slate for the third quarter is picking up and summer tends to be a strong time of year for Netflix. And the company plans to increase its marketing spending for the remainder of the year.