In Q3 Netflix added two international subscribers for every new U.S. member, but price hike slowed growth

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Netflix experienced slower-than expected growth in Q3 of 2014, adding a total of 3 million members worldwide. Growth was especially slower on the domestic side: Netflix grew its domestic subscribers by 0.98 million, compared to 1.29 million a year ago. Altogether, the company now has 37.22 million streaming subscribers in the U.S., compared to 31.09 million a year ago.

Growth was stronger internationally, where [company]Netflix[/company] added 2.04 million, compared to 1.44 million a year ago. In its international markets, the company now has 15.84 million members, compared to just 9.19 million a year ago. This means that Netflix now officially grow twice as fast in international markets as in the U.S.

And this international growth story is likely to continue: Netflix launched in Germany, France, Austria, Switzerland, Belgium and Luxembourg in mid-September, and the company now expects to add another 2.15 million international subscribers internationally in Q4, which would once again be more than it expects to add in the U.S..

On the monetary front, Netflix generated $1.22 billion in revenue from stream in Q3, compared to $1.11 billion during the same quarter a year ago. Including DVD rentals, Netflix generated a total of $1.41 billion in revenue, compared to $1.11 billion a year ago . That revenue came with a net income of $59 million, compared to $32 million a year ago.

Netflix CEO Reed Hastings and CFO David Wells blamed the growth, which was below analyst expectations as well as the company’s own internal forecast, on the company’s price increase earlier this year in their letter to shareholders:

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.

The added that the impact of this price increase may have been masked in the company’s solid Q2 results by new subscribers signing up for the company’s original series Orange is the New Black.

But on Wednesday, Netflix investors weren’t just looking for subscriber numbers. HBO’s announcement that it will launch a full standalone online version of its service in the U.S. next year spooked Netflix investors earlier during the day, briefly sending the stock down 4.5 percent. However, Wells and Hastings argued that this wouldn’t impact investors much:

Update: This post was updated at 2:18pm with more details on Netflix’s total revenue.

2 Comments

Keith Hawn

Q3 results = further testament to the fact that there is NO evidence of “binge buyers” for Netflix. Although it makes nice headlines to say US viewers “signed up in droves to catch the new season of Orange…”, the straight-line subscriber chart says otherwise.

This is, for the millionth time, a growth story transitioning to post-growth market dynamics. With little exception, Netflix domestic rate of growth will continue to drop. HBO Go will only accelerate the trend.

TimeKeeper

Do you really think that there is that kind of price sensitivity for Netflix? Slightly higher prices resulted in a lot less growth than expected. They always sandbag their growth numbers so they can meet or beat them. Missing those numbers and forecasting lower numbers for the future speaks volumes about their growth story.

If HBO does it right, they will take a big chunk out of Netflix’s subscriber base. I believe there is a lot of Netflix fatigue building among their subscribers. A sharply priced, well stocked HBO catalog may be just the catalyst needed for a mass migration from Netflix.

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