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CandW discuss if Netflix Q2 downturn is a blip or a trend

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Netflix lost US subs for the first time in Q2 and turned in weak performance outside of the US. Is Netflix Q2 blip really a trend?

Chapter 1: Netflix Q2 results (0:30)

By the company’s primary benchmark, subscriber growth, the second quarter was not a good one. The company lost subscribers in the U.S. for the first time since it introduced streaming services in 2007. Paid subscribers fell 126,000, leaving the company with 60.1 million U.S. paying customers. However, the May increase of $2 per month for the HD and Ultra HD plans help lift revenue and 11% over Q1 2019 and 21% over Q2 2018, to $2.3B.

From a subscriber perspective, international results were only marginally better. The grew paid memberships by 2.8 million. In Q2 2018, Netflix added 4.6 million paying customers. Revenue rose 8% from last quarter and 33% from Q2 2018, to reach $2.6B.

Globally, Netflix increased the number of paid subscribers 2.7 million, against its forecast of 5 million from last quarter. The financial markets reacted swiftly with the stock falling 12% in after-hours trading.

Chapter 2: What happened to cause the downturn? (3:30)

Q3 already looks like it is doing better for the company, but that doesn’t explain what happened in Q2. Price increases in the US and a weaker content slate are likely to blame. Will also thought reduced marketing spending could also be involved. Both Will and I are amazed that Netflix isn’t better at its forecasts. After all, they’ve been at it for 12 years.

Chapter 3: Q3 and beyond (10:30)

The third quarter of 2019 is already looking better, primarily due to Stranger Things 3. However, after that the company will need to combat Disney+ and HBO Max. I think both Q4 and Q1 2020 will be adversely affected by all the noise from Disney+. Will thinks that the new services will make it hard for any service to be heard later this year.

Chapter 4: Dealing with the loss of Friends and The Office (14:00)

Netflix is pinning its hopes on originals picking up the slack when marquee shows like Friends and The Office vanish. There is some evidence from The NPD Group that Netflix originals strategy is working. However, they might not directly replace comfort-viewing shows like Friends.

Chapter 5: India strategy could provide a big boost (20:00)

Netflix changed strategy finally in India. It will release a low-price mobile plan there. I think this will have a big impact on subscriber growth next year.


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