Netflix came up short of its own forecast for subscriber additions during the second quarter but the streaming company notched growth in revenue and operating income.
Netflix added 2.7 million paid memberships during the quarter, far short of the 5 million the company had predicted and the 5.5 million it added during the year-ago quarter. The company said domestic subscriber growth was flat during the quarter but that it expects it will return to growth during the third quarter.
Netflix is predicting 7 million paid memberships (800,000 in the U.S. and 6.2 million internationally) to be added in the third quarter.
The company attributed its forecast miss to factors including pricing and content.
“Our missed forecast was across all regions, but slightly more so in regions with price increases,” Netflix said in a news release, adding that competition didn’t likely factor into slower subscriber growth. “Rather, we think Q2’s content slate drove less growth in paid net adds than we anticipated. Additionally, Q1 was so large for us (9.6m net adds), there may have been more pull-forward effect than we realized.”
If subscriber growth was somewhat disappointing, other financial metrics picked up the slack for Netflix. Second-quarter revenue rose 26% to $4.9 billion and operating income rose 53% to $706 million. The company is predicting third-quarter revenue will total $5.25 billion (up 31.3%) and operating income will total $833 million.
Netflix did address upcoming competition from new services from Disney, WarnerMedia, Apple and NBCUniversal, but mostly described it as a good sign for the entire streaming video industry. The company also admitted that it still has room to grow its share of consumers’ attention, saying that in the U.S. it accounts for 10% of average consumers’ television time (and less than that on mobile).
The company also shot down any idea that it might introduce advertising.
“We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction,” Netflix said.