Netflix shares dive after disappointing quarterly results

Netflix shares dive after disappointing quarterly results

Netflix began life renting DVDs by post but has grown to become the world's largest streaming video service.

The company's shares fell more than 13 percent shortly after the start of trading on Tuesday before rebounding, with the stock trading down almost 6 percent as of 2:40 p.m.

Along the way, Wall Street may have focused more on the allure of the Netflix story, rather than the company's fundamentals, said Rob Arnott, head of fund advisory firm Research Affiliates. If the stock plunges on the same trajectory during Tuesday's regular trading session, it will be the steepest drop in almost four years. Analysts at Bloomberg expected the company would add about five million overseas customers during the quarter, but only 4.47 million were added. Its total base of 57 million subscribers in the US dwarfs Hulu's 20 million users and HBO's 5 million. Netflix reported 5.2 million new subscribers - which was well short of its projected 6.2 million new customers.

Despite its second-quarter misfire on subscriber growth, the Los Gatos, California, company reported earnings that beat analyst estimates.

"Our viewing is setting year-over-year records, the shows that we have coming", he said in a conference call on Monday.

Netflix added 670,000 subscribers in the United States, well below analysts' estimates of 1.19 million, according to Thomson Reuters I/B/E/S.

During the latest quarter, Netflix earned a profit of $384 million, or 85 cents a share, a gain of more than 481 percent from the $66 million, or 15 cents, it earned in the year-ago period. Total revenue rose 40.2 percent to $3.91 billion.

Netflix will spend as much as $8 billion producing and acquiring TV shows and movies this year, including Disenchantment from The Simpsons and Futurama creator Matt Groening, new seasons of House of Cards and Making a Murderer, and presumably several series and films yet to be announced.

Netflix already has been battling challenges from Amazon, Google's YouTube and Hulu in the video streaming market, and it is likely to face even stiffer competition as other formidable rivals try to muscle into the market.

Going forward, "We anticipate more competition from the combined AT&T/WarnerMedia, from the combined Fox/Disney or Fox/Comcast as well as from global players like Germany's ProSieben and Salto in France", the company said in the investor letter.

Disney is also planning its own streaming service, which is expected to launch in 2019.

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