NFLX Netflix Inc

By Shalini Ramachandran and Maria Armental 

Netflix Inc. on Monday reported its weakest subscriber expansion in two years, as the streaming video company saw a sharp slowdown in new additions in the U.S. and abroad.

Shares of Netflix, down 14% this year, fell 16% $83.33 in after-hours trading.

However, the Los Gatos, Calif.-based company also reported earnings that handily beat analysts' earnings estimates and its prior guidance, thanks in part to lower content costs.

Netflix added 1.68 million streaming subscribers in the June quarter, missing its projection of 2.5 million, and ending the quarter with 83.18 million subscribers, including 79.9 million paid subscriptions.

In comparison, Netflix added 6.74 million new users in the March quarter and 3.28 million in the year-ago June quarter. The latest quarter is the weakest since Netflix added 1.69 million users in the June 2014 quarter.

The company had warned it would feel the effects of earlier price increases, particularly in the U.S., where it had said more than half of its customers had been "grandfathered" under the lower prices. Netflix is phasing out the lower prices for those customers this year, which it has said may result in "modestly increased churn."

On Monday, Netflix said churn edged up slightly but that, overall, cancellations from those who had been locked-in the lower prices had been "modest and conforms to our expectations."

For the current quarter, Netflix projects 2.3 million additional streaming subscribers, compared with analysts' projection of 3.5 million additions, according to FactSet.

The streaming giant, which is facing increasing competition from the likes of Amazon.com Inc., has said it hopes to complete its global rollout by the end of the year, although it has acknowledged it has encountered challenges to get into China. In a letter to shareholders, the company said it is still exploring an entry into the country, but that "the regulatory climate in China for our service has become more challenging."

At the same time, Netflix is pouring more money into original shows and movies, as well as marketing. Its streaming content obligations ballooned to $13.2 billion at the quarter's end, from $10.1 billion a year ago.

Also on Monday, Netflix announced a deal to premiere CBS Corp.'s new "Star Trek" original series in 188 countries, excluding the U.S. and Canada. The series, which is being created for CBS' streaming service CBS All Access, marks the first time Netflix has acquired the international rights for an original show made by a rival streaming service.

Over all, Netflix reported second-quarter profit of $40.8 million, or 9 cents a share, compared with $26.3 million, or 6 cents a share, a year earlier. Excluding certain items, profit fell to 7 cents a share from 10 cents a share a year earlier.

Revenue jumped 28% to $2.11 billion.

Analysts surveyed by Thomson Reuters had projected a profit of 2 cents a share on $2.11 billion in revenue.

For the current third quarter, Netflix projected earnings of 5 cents a share, below the Thomson Reuters estimate of 7 cents a share.

During the second quarter, Netflix added 160,000 subscribers in the U.S. and 1.52 million abroad, below expectations of 500,000 in the U.S. and 2 million abroad. The company's domestic subscriber growth has slowed year-over-year over the past four consecutive quarters.

Netflix Chief Executive Reed Hastings has said that it would be easier for Netflix to reach its stated goal of 60 million to 90 million customers in the mature U.S. market if more cable providers would join forces to offer Netflix through their set-top boxes. Earlier this month, Netflix and Comcast Corp., the nation's largest cable provider, finally announced such a deal after years of feuding.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com and Maria Armental at maria.armental@wsj.com

(END) Dow Jones Newswires

July 18, 2016 16:44 ET (20:44 GMT)

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