Netflix reported third quarter sales of $906 million and net income of $ 8 million, with earnings of 13 cents a share. Sales fell in line with forecasts and earnings were ahead of the four cents per share analysts had predicted. But the bad news came in the form of new U.S. subscriptions at just 1.16 million and puts Netflix at 3.43 million new subscribers for the year, a bit short of the 7 million that Netflix had forecasted. CEO Reed Hastings warned the 7 million mark was lofty, considering the company had the Olympics to contend with. To no surprise, Netflix shares tumbled 16 percent in after hours trading.
For the quarter DVD subscriptions continued to fall, with a decline of 630,000 for the quarter, while the streaming business expanded to 25.1 million subscribers, compared to 8.6 million DVD subscribers. This is an expected trend considering the speed and ease of streaming content.
The losses may pile up in the fourth quarter as higher costs associated with international expansion continue on as well as increased competition from Amazon Prime, Hulu and Redbox.
In a letter to investors, Hastings and CFO David Wells admit to the slowed growth (compared to 2010), but affirmed their confidence in the company and believe the Netflix “content and member experience continue to improve faster than competitors.”
While that last comment is debatable, one thing for certain is Netflix struggles ahead. Netflix needs to innovate or will face stiffer competition, especially if Apple, Google and Microsoft look to make a bigger presence in the living room.