Why did Netflix add fewer subscribers in the second quarter and how is it impacting its stock?

[John Naronha]

[Ignatius Bose]

The key takeaway from Netflix’s (NASDAQ:NFLX) second-quarter earnings announcement on Wednesday was the addition of fewer paid subscribers, resulting in a lower net income. Netflix declared that it added 2.7 million paid subscribers in the April-June quarter, sharply lower than the 5 million new customers predicted by the firm and the 5.3 million anticipated by analysts. The lower-than-expected subscriber additions were led by a loss of 126,000 domestic paid subscribers compared to market expectations of a gain of 310,000.

According to Netflix's CEO, Reed Hastings, a lack of fresh content and seasonality, in addition to a price increase, contributed to the shortfall in new subscriptions, which were mostly led by a wave of price-conscious customers looking for competing service providers and more content options. However, the video streaming giant looks to turnaround the business this quarter and expects to add 7 million new subscribers after including new launches and episodes along with the premiere of its franchise programme “Stranger Things.”

Shares of Netflix tumbled 10.76% to $323.24 in the extended session on Wednesday following the disappointing earnings announcement. In the year to date, the stock is up 35% compared to the 23% gains on the NASDAQ.