After a steady growth in value, Netflix stocks finally plummeted. Many analysts are wondering whether the bubble has finally burst but even then, there are some genuine explanations to this sudden downward spiral. Netflix shares were down 11% during Tuesday morning trading after it emerged that earnings for the video streaming service won’t hit Wall Street projections. This is the first time Netflix has failed to meet growth expectations over the last five quarters.
Netflix announced on Monday that it had increased its subscriber base by 670,000 in the US. This was almost half the 1.2 million target that was predicted by Wall Street analysts. Netflix also said that overseas subscribers increased by 4.5 million which was slightly lower than the 5.1 million target expected by analysts.
Although at first these misses may look very small for a company that has well over 125 million subscribers, it’s an early warning shot for investors who believe that the web streaming service is slowing down. Netflix has also been facing increased competition from Disney and HBO. Disney has ramped up its online streaming service over the last few months. Its attempt to acquire 21st Century Fox and all its assets is designed to give the company a major presence online to compete with Netflix.
HBO has also launched a new online streaming strategy in order to fight Netflix’s growing influence in the industry. Companies like Apple, on the other hand, are also increasing their efforts in the video streaming service industry. It’s very likely that over the coming few years there will be a number of major players in the industry that will be strong enough to compete with Netflix.
There are fears among analysts that the increased competition may lure subscribers out of Netflix or prevent any significant subscriber growth over the coming months. This may lead to a long-term revenue decline. There’s also the so-called “streaming ceiling.” Not everyone is interested in streaming content online, and the market that Netflix targets is not unlimited. At some point, all people who are interested in streaming content online will already have an account with a streaming service provider. The potential for growth when the ceiling is hit will be very low. At current growth rates, we are really not that far away from the ceiling.
The first quarter of the year saw Netflix get 7.4 million new subscribers. This was way more than the 6.5 million that had been projected by Wall Street analysts. Over the past year alone, Netflix stocks have more than doubled as a result of this unprecedented growth. However, if future earnings and growth figures are anything like the ones released on Monday, it may be awhile before we see the streaming service make a comeback in the stock market.
Nonetheless, Netflix maintains that even with this slow second-quarter growth, the company is still on course to meet projected subscriber growth targets for the current fiscal year. According to Netflix, second-quarter performance has always been difficult. Netflix also reported relatively low growth numbers in the second quarter of 2016.
