Netflix shares tumble despite strong profits

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Netflix shares have fallen more than 10% despite increasing revenues.

Netflix revenues climbed 26% year-on-year to $4.9bn (£3.9bn) and operating profits of $706m (£566m) have come in well above market expectations.

However, subscriber growth has slowed as prices increase and competing platforms are introduced. Netflix counted 2.7m new subscribers – well below expectations of 5m. The slower than expected growth in subscribers was spread across all regions, although more pronounced in countries that saw price increases.

Netflix now has 151.56m paying subscribers.

Guidance for next year quarter remains upbeat and ambitious. Management expect Q3 revenues to rise 31.3% year-on-year, with operating profits of $833m (£668m) and 7m new subscribers.

Netflix shares were down 10.8% in aftermarket trading.

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown said: “Netflix’s business model demands that the group builds scale. With billions being spent on new content every single quarter, if Netflix is to stop the seemingly endless cash burn it needs to spread the cost over a larger customer base. Misses in subscriber numbers hurt Netflix shares more than just about any other metric, and this is a significant one.

“Missing expectations just when competition for viewers is hotting up is doubly worrying and doubly painful. Performance in the next two quarters will be crucial. Fending off the likes of Disney and Apple with one hand while scooping in new customers with the other is a big ask.”

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