Why Netflix says it had a rare subscriber loss in Q2 2019

Netflix blames its content slate, regional price increases and a “pull-forward effect” of its strong Q1 growth for its first quarterly loss of paid domestic subscribers since 2011.

The company on Wednesday reported a loss of 126,000 domestic paid subscribers compared with analysts’ expectations for a 352,000 gain. Netflix also missed its own forecast for global subscriber growth by 2.3 million.

Its shares plunged more than 11% Thursday.

The last time Netflix lost domestic subscribers was in 2011 after the company raised prices and tried to separate its streaming product from its DVD mailing service, sparking customer pushback.

Netflix said Wednesday its missed forecast was most pronounced in regions that saw price increases. The company said it does not believe competitive forces were to blame since “competitive intensity and our penetration varied across regions (while our over-forecast was in every region).”

Netflix said it will have a more robust content slate in the third quarter to attract more subscribers, forecasting 7 million paid net adds and revenue of $5.25 billion. The company said its TV show “Stranger Things” has already had strong viewership for its latest season, and it anticipates new seasons of “The Crown” and “Orange is the New Black” will be similarly popular.

Bernstein analyst Todd Juenger called the subscriber loss “the Q2 curse.”

“There must be something about Q2 that makes it especially hard for Netflix to predict subs. Since 2016, they have missed their Q2 sub guidance three of four times,” Juenger said in a note to investors Thursday.

While Netflix’s subscriber loss in the U.S. is rare, its miss on international subscribers may be more troubling to investors since this represents its biggest growth opportunity. Netflix reported international net additions of 2.8 million subscribers compared with analyst estimates of 4.8 million.

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