Netflix Inc. is a provider of subscription streaming entertainment service. The company has paid streaming memberships in over 190 countries and it allows members to watch a variety of television series, documentaries and feature films across a variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on any Internet-connected screen. Members can play, pausa and resume watching, without commercials. Additionally, Netflix offers its DVD-by-mail service in the United States. It offers a variety of streaming membership plans, the price of which varies by country and the features of the plan. Pricing of its plans ranges from $2 to $24 per month. Members can watch content from Netflix through a range of Internet-connected devices, including televisions, digital video players, TV set-top boxes and mobile devices. The company acquires, licenses and produces content, including original programing. The company is publicly listed on NASDAQ under the ticker “NFLX”.
This year presented a rough start for Netflix shares, as investors, already selling heavy the technology shares in the fear of rate hike, were confronted with a kind of disappointing earnings report. Well, in all honesty the revenue and earnings figures weren’t actually bad, the opposite: the company has beaten the analyst expectations both in revenue terms by 16% and in earnings terms by over 60%. The reason why the earnings report was considered bad, that’s also why the shares plummeted by over 20% just after it became public, is the stagnant subscriber growth. And it’s highly probable that the subscribers will continue to stagnate or, worse, to decrease, as the competition is becoming fierce and the streaming condition is no different than it was in the television environment when Netflix was born. Then, yesterday’s quarterly results confirmed what was already expected by the many investors who sold stocks last quarter: Netflix lost subscribers, and a lot! Indeed, subscribers were down by 200,000 compared to the previous quarter, while the analyst expectations were an increase of 2.5 million. This result alone made shred more than 27% of the share price in the after hours, and it is likely to continue falling more.
Indeed, the reason why people abandoned the traditional means of entertainment to move to solutions like Netflix was, mainly, the fact that the former had little to no centralized content, and you had to pay to a number of different subscription services to be able to see everything you wanted. In this context, Netflix proposed the solution: a single subscription to access everything you wanted to watch. As the competitors saw how profitable this solution was, they started to claim rights over shows and make exclusives, making it impossible for the user to be able to watch everything with a single subscription. In this context, since not many people are willing to subscribe to a lot of different entertainment services simultaneously, users are in the condition in which they either choose not to watch something, or to streaming it for free using some questionable illegal solutions. No wonder they chose the latter solution, and it is reflected perfectly in the figures published.
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