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Netflix shares dive on profit miss despite user growth

SAN FRANCISCO, United States, Jul 18 – Netflix shares dived on Thursday after the leading streaming entertainment service reported relatively flat quarterly profits despite rising subscriber numbers.

Netflix reported a profit of $720 million on revenue of $6.1 billion in the recently ended quarter, compared with $709 million profit on $5.8 billion in revenue during the first three months of the year.

Wall Street analysts had expected stronger profit, especially as people who are hunkered down at home due to the coronavirus pandemic turn to the service for entertainment.

Ranks of paid memberships grew by 10.1 million to about 193 million total, but Netflix warned growth could cool since sheltering-in-place likely meant people rushed to join in the early months of the pandemic as lockdowns began, instead of spreading out over the year. 

Shares quickly dove more than 10 percent in after-market trades that followed release of the earnings figures but regained a bit of the loss.

Wedbush analyst Daniel Ives described the share stumble as a “near-term speed bump” due to overly exuberant expectations.

“Streaming growth is seeing a bonanza in this COVID environment,” Ives said.

Pandemic-related restrictions have sped up a lifestyle shift from traditional television to streaming shows online, according to eMarketer forecasting analyst Eric Haggstrom.

“Looking forward, even as lockdowns are relaxed and new competitors begin to scale their services, Netflix will extend its lead as the first stop for entertainment,” Haggstrom predicted.

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Netflix said in a letter to shareholders that while its slate of original shows for this year is on track, it is focused on safely getting production back up and running.

“As the world slowly re-opens, our main business priority is to restart our productions safely and in a manner consistent with local health and safety standards to ensure that our members can enjoy a diverse range of high quality new content,” executives said in the letter.

“There is no one-size-fits-all approach, and we’re adapting to local circumstances. Today, we’re slowly resuming productions in many parts of the world.”

– Two chiefs –

Netflix is facing increased competition from tech giants such as Apple and Amazon, along with entertainment titans including Disney, NBCUniversal and WarnerMedia.

Social media is also a threat. “TikTok’s growth is astounding, showing the fluidity of internet entertainment,” Netflix said in the letter.

“Instead of worrying about all these competitors, we continue to stick to our strategy of trying to improve our service and content every quarter faster than our peers.”

Netflix also announced some executive changes as part of a long-term succession plan.

Chief content officer Ted Sarandos was appointed a co-chief executive and elected to a seat on the Netflix board, while Greg Peters will be chief operating officer as well as chief product officer.

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“In terms of the day-to-day running of Netflix, I do not expect much to change,” chief executive Reed Hastings said in a release detailing the executive changes.

“So think of Ted’s well deserved promotion formalizing how we already run the business today.”

Hastings added that while the moves were part of a “long process of succession planning,” he is committed to Netflix for the long term.

“To be totally clear, I’m in for a decade. As co-CEOs it is two of us full time; it is not a part-time deal,” Hastings said during an earnings presentation.

Peters said in a video interview Thursday he foresees future growth coming from outside the United States.

“Think of more and more employees outside the United States, more productions, more operations happening outside the US and hopefully many, many more members outside the US,” he said.

Netflix has invested billions of dollars in original content, as has streaming television rival Amazon, to win and keep subscribers in the increasingly competitive online entertainment market.

The service has found success with series such as “Umbrella Academy” as well as game shows such as “Too Hot To Handle,” along with its own films and reality television.

“We want to have so many hits that you just come to Netflix and go hit-to-hit and never have to think of those other services,” Hastings said.            

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