As Amazon challenges with new monthly subscription tier, Netflix's pace disappoints some investors

Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX) may soon be racing neck and neck for subscribers, as Amazon adopted a monthly subscription tier that aligns closely to the top SVOD provider's streaming tiers. The news, coming just ahead of Netflix's first-quarter earnings report, may have contributed to a drop in Netflix share prices.

Netflix beat its own subscriber forecast signing up 2.23 million new members worldwide in the first quarter for a total subscribership of 81.5 million. However, its cautious second-quarter subscriber forecast may also have spooked investors. That despite earnings per share of 6 cents on a profit of $27.66 million, an increase of 1 cent per share over the same period last year.

For the first quarter, Netflix saw total streaming revenues of $1.81 billion, up from $1.4 billion in the first quarter of 2015.

Part of the share price drop may have been a reaction by Wall Street to news that Amazon will begin offering its Prime Instant Video service as a standalone option with an $8.99 monthly subscription rate – on par with Netflix's streaming prices and the first time Amazon has broken out its SVOD service from its standard Prime membership. (The retailer is also offering a $10.99 monthly Prime subscription as well.)

Netflix CEO Reed Hastings minimized the impact of Amazon's announcement during the company's earnings call on Monday. "Hulu is doing some great work. Amazon is, HBO, Showtime. There are so many competitors, and everyone is working hard to build the best content," he said, according to a Seeking Alpha transcript.

In response to a question about whether Amazon's addition of linear channels would challenge Netflix, Hastings reiterated the provider's investment in original content and its focus on its global licensing strategy. "So that's just a very different business. It's not one we focus on a lot. We know what we want to be, which is a great global producer and distributor of content, and other people will do other things and that's fine. They may be very successful."

Netflix kept its subscriber forecast in the conservative zone, predicting it will add just 2.5 million new subs in the second quarter, with most of those additions happening internationally. It forecast that revenues will reach $1.96 billion, with earnings per share of just 2 cents on about $9 million of income. The provider remains confident that most subscribers won't churn despite the end of grandfathered-in lower streaming rates happening during the quarter, "partially because these members have been with us for a reasonable period already, and because our content continues to improve," Hastings said in the investor letter.

Shares of Netflix remained down in Tuesday morning trading on the Nasdaq, trading at around $99 or about 8.57 percent lower than the previous day.

For more:
- see this Netflix shareholder letter
- see this WSJ article (sub. req.)
- and this WSJ article
- see this Seeking Alpha transcript

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