Shares in Netflix plunged by more than 14pc in after-hours trading, after it missed analyst expectations for subscriber growth by more than one million users, in what it called a "strong but not stellar" quarter.
J.P. Morgan reiterated an Overweight rating, while increasing its price target to $415 per share from $385, saying it does not believe the latest subscriber numbers "reflect a fundamental change in the Netflix story". Stocks opened at $346.95 apiece on Tuesday morning, but by midday they had rebounded back up to around $380.
"Simply stated, we don't see any potential for Netflix to deliver operating leverage on its content investment until the company is able to create a sufficient quantity of high-quality owned original programming to allow it to grow its content spending more slowly", Pachter said in a report. The company didn't add as many new subscribers as analysts expected, something that's being blamed on a dearth of new content during the second quarter.
Although Netflix fell short with subscribers, its shows remain critical hits.
Ranganathan said Netflix pinned the shortfall on overaggressive earnings estimates in a "seasonally weaker [second quarter], partly aggravated by audience distraction from the World Cup".
All told, Netflix over the last three months added 670,000 new subscribers in the United States and 4.47 million new subscribers overseas.
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Netflix's second-quarter revenue also came in short of projections.
"[Netflix's] ultimate opportunity remains unquestionably large", Wlodarczak said, "although moderately smaller than previously modelled".
It marked the first time in a more than a year that Netflix hadn't exceeded its subscriber growth projections.
The miss on subscribers for the second quarter "isn't entirely surprising", according to eMarketer principal analyst Paul Verna, as rivals including Amazon, Hulu, and HBO are gaining share of the subscription-video market at Netflix's expense.
The company did roughly meet analyst expectations on earnings, at $3.91 billion compared to estimates of $3.94 billion. Earnings grew 32 percent from a year ago to $384 million, or 85 cents per share. Total revenue rose 40.2 percent to $3.91 billion. Disney is selling an internet version of its sports network ESPN and plans to introduce a general entertainment video service next year.
At the same time, Netflix faces growing competition.