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Netflix shares slump on flat profit despite user growth

AFP/San Francisco, United States
Filed on July 17, 2020
Netflix, shares, dived, streaming, service, reported, relatively, flat, quarterly, profits, despite, rising, subscriber, numbers

(Reuters)

Streaming service's paid memberships grew by 10.1 million to about 193 million, although stronger profit was expected.

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 (Dh2.64 billion) on revenue of $6.1 (Dh22.4 billion) billion in the recently ended quarter, compared with $709 million (Dh2.6 billion) profit on $5.8 billion (Dh21.3 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 per cent 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 on moving about have speeded 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.

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 was also a threat. "In addition, 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.

"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 formalising 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.

"It will be great to have some help as we span the globe," Hastings said during an earnings presentation.

"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."

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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