A hiccup in new subscribers didn't stop Netflix (NASDAQ: NFLX) from bringing in revenues of $1.41 billion in the third quarter of 2014, keeping it in line with forecasts. However, the subscriber news combined with HBO's landmark announcement earlier that it would offer a standalone OTT service sent the subscription video on demand (SVOD) provider's stocks downward 25 percent following its earnings report.
Netflix's diluted earnings per share were 96 cents, below last quarter's diluted EPS of $1.15, but 3 cents above analyst forecasts of 93 cents per share.
Netflix added less than 1 million U.S. subscribers in the third quarter of 2014 and 2 million subs internationally, coming in below its forecast. It now has 37.22 million U.S. members and 15.84 million international members, CEO Reed Hastings said in his quarterly letter to shareholders. Those numbers were below the company's forecast for the quarter: It had predicted a total of 37.6 million U.S. subs for Q3, and 16.16 million subs internationally.
Reed said the service's price increase for new members to $7.99 per month in the U.S., which began in May, is likely to blame.
"As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago. Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US," Hastings wrote.
The entrance of HBO as a competitor to Netflix wasn't ignored, with Hastings essentially saying they had expected this to happen all along.
"Starting back in 2011 we started saying that HBO would be our primary long-term competitor, particularly for content. The competition will drive us both to be better," he said. "It was inevitable and sensible that they would eventually offer their service as a standalone application."
He also downplayed that competition somewhat, noting that the content lineup on both services is different. "Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we both prosper as consumers move to Internet TV."
Netflix is forecasting that it will add 4 million members worldwide in Q4, bringing its total to 57 million subscribers.
Shares of Netflix closed at $334.97 on Wednesday, Oct. 15, down $113.97.
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