Netflix Misses Subscriber Forecast in Q3, Stock Falls

Netflix’s growth in the third quarter cooled considerably after its massive COVID-fueled bump in the first half of 2020.

The company netted 2.2 million subscribers in the third quarter of 2020 — below Wall Street’s expectations and under the Netflix’s own previous forecast. The streaming giant also posted net earnings below analyst consensus estimates. Shares dropped as much as 6% in after-hours trading.

The company had previously forecast adding 2.5 million paid streaming customers in the third quarter, after record net adds of 10.1 million in Q2 and 15.8 million in Q1 this year — a massive lift Netflix attributed to stay-at-home orders amid the coronavirus crisis. That subscriber “pull forward” in the first half of 2020 led the company to forecast lower net adds in the back half of the year.

Netflix reiterated that point in its Q3 letter to shareholders, saying it missed the subscriber forecast for the quarter “primarily due to our record first half results and the pull-forward effect we described in our April and July letters… In these challenging times, we’re dedicated to serving our members.”

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Netflix posted revenue of $6.44 billion and earnings of $1.74 per share. Wall Street analysts on average expected third-quarter sales of $6.38 billion and EPS of $2.13.

For Q4, Netflix forecast 6 million paid net adds — versus 8.8 million in the year prior. If it hits that number, that would put the company at a record 34 million paid net adds for 2020, well above its prior annual high-water mark of 28.6 million in 2018.

In 2021, as “the world hopefully recovers” from the pandemic, Netflix expects its subscriber growth to return to pre-COVID levels. “We continue to view quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long-run adoption of internet entertainment, which we believe is still early and should provide us with many years of strong future growth as we continue to improve our service,” Netflix said in the shareholder letter.

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