Netflix Shares Drop After Missed Forecasts & Subscriber Guidance For Second Quarter

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The Takeaways:

  • Netflix failed to reach analyst expectations on earnings per share but beat revenue expectations.
  • Netflix reported a massive surge in viewership due to the stay at home measures imposed as a result of the pandemic, but the company’s stock dropped almost 9% after hours on guidance for new subscribers that was less than half what analysts expected.
  • Simultaneously, the company announced that Chief Content Officer Ted Sarandos will be promoted to co-CEO alongside current CEO Reed Hastings.

What Happened:

Executives said in the shareholder letter that “growth is slowing as consumers get through the initial shock of COVID and social restrictions. Our paid net additions for the month of June also included the subscriptions we cancelled for the small percentage of members who had not used the service recently.”

Netflix is not the only tech giant to face share setbacks this week. Facebook, Amazon, Alphabet and Microsoft all experienced share drops this week. The selloffs could be attributed to the California Governor’s order on closure of indoor restaurants, shut bars, gyms, hair salons, and closing churches in hardest-hit regions. 

Despite the challenges posed by the pandemic, Netflix said it does not expect its 2020 slate of content to be significantly impacted by production shutdowns. While current production challenges will push big productions to the end of 2021, the “total number of originals for the full year will still be higher than 2020.”

A Modest Rebound:

Amidst fear that Netflix’s growth could fall under expectations, stocks finally rebounded on Friday.  These signs of recovery from previous losses indicate investors’ confidence in the streaming giant is recovering.

Dow Jones Industrial Average futures rose 115 points, indicating a 50-point gain at the open. The S&P 500 futures gained 0.5%, while the Nasdaq-100 futures traded 0.9% higher.


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