Netflix Earnings Drivers: Where Have all the Subscribers Gone?

In March, Netflix (NASDAQ:NFLX) Chief Executive Reed Hastings said that Netflix would add 7 million U.S. customers this year in order to revive the company’s lagging growth in the United States.

To stay on schedule, the world’s largest online video service would need to add approximately 1.8 million subscribers to met the company’s goal of 7 million. While analysts predicted that the company would increase new customers this quarter by 1.43 million, when the company announced its third-quarter results, new subscriptions amounted to only 1.16 million customers. However, the fourth quarter may see a rise in subscriptions that could bring Netflix closer to its goal; the quarter typically sees a rise in new customers as Netflix-streaming devices are common holiday gifts.

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Netflix reported revenue of $905 million for the quarter, compared to $822 million for the same quarter last year, and posted earnings per share of $0.13. While the company’s earnings per share decreased year-over-year, its third-quarter revenue surpassed Wall Street’s forecast of $904 million, as did its earnings.

As growth in the United States slows, the online video subscription service has been dependent on international markets to expand its revenue and earnings potential. In the last quarter, Netflix added 690,000 new subscriptions abroad, bringing its international customer count to 4.31 million. So far, the company has expanded into Canada, Latin America, and the United Kingdom and Ireland; the Scandinavian countries of Norway, Denmark, Sweden, and Finland are its next target. However, analysts predict that the expansion will cause the company to post a loss in the fourth quarter.

Due to the company’s lower-than-anticipated new subscriptions, shares in Netflix dropped 15 percent, to $57, since the earnings release.

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