Netflix stock fell around 5% in after-hours trading Tuesday after the company posted slowing growth in new subscriptions and lower-than-expected profits, a sign that the streaming giant’s pandemic bump may be petering out.
Even with the summer slowdown, Netflix’s popularity has spurred speculation whether the company may soon raise its U.S. monthly subscription prices by another dollar or two in the U.S., as it recently did in Canada earlier this month. The company recently stopped offering free one-month trials in the U.S., a move some analysts viewed as a precursor to a potential price increase. Netflix’s most popular U.S. plan costs $13 per month.
The company has periodically raised its prices to help pay for the original programming that has helped turn it into a cultural phenomenon in the face of intensifying competition from even bigger rivals such as Amazon and Apple. Higher prices also help boost Netflix’s profit, which have remained relatively modest in light of its video service’s widening appeal.
The company said it added 2.2 million net memberships in the three months ended September 30, down from 6.8 million new memberships during the same period in the prior year. The additions bring Netflix’s total subscribers to nearly 195.2 million, lower than the 196.2 million Wall Street analysts had projected.
Netflix posted earnings of $1.74 per diluted share on $6.4 billion in revenue. Analysts had projected earnings of $2.13 per share on revenue of $6.38 billion, according to Refinitiv.
Netflix has thrived in 2020 as people were stuck at home during the global health crisis. The company posted colossal subscriber gains over the past two quarters, which helped drive its stock up nearly 70% this year.
After a “blowout” first quarter and a strong second, it is “it is reasonable to think” Netflix would take a breather in new subscriber gains for the third, said Dan Morgan, a senior portfolio manager at Synovus Trust.
Netflix said as the world “hopefully recovers” from COVID-19 in 2021, it expects its subscriber growth to revert back to pre-pandemic levels. That means growth will be much slower in the first half of next year than it was this year.
