Netflix’s share price plummeted in after-hours trading on Wednesday as the streaming video service announced it had added fewer members than expected.
The company’s shares slid over 25% after it announced it had added 3 million streaming subscribers in the latest quarter, below its forecast of 3.69 million. Netflix added 980,000 subscribers in the US, and 2.04 million internationally. Both numbers were below the predictions the company made in July.
Revenues for the three months ending September were $1.22bn, also less than analysts had been expecting. The fall in company’s share price exceeded the 22% gain it had so far made throughout 2014.
The fall came on the same day HBO announced it would launch a web only service which will compete directly with Netflix. The award-winning channel, owned by Time Warner, is currently only available with a cable subscription.
In a letter to shareholders, Netflix blamed its price hike, the first since 2011, for the disappointing numbers. The impact “appeared to be offset for about two months by the large positive reception to season two of Orange is the New Black,” the company said.
“We remain happy with the price changes and growth in revenue and will continue to improve our service,” Netflix said. “The effect of slightly higher prices is factored into our Q4 forecast.”
The letter also addressed HBO’s decision to directly compete with Netflix. Netflix said it had long identified HBO as its “primary long-term competitor”.
“The competition will drive us both to be better. It was inevitable and sensible that they would eventually offer their service as a standalone application. Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we both prosper as consumers move to internet TV,” said Netflix.
Netflix’s addition of 3 million subscribers brought its global total to 53.1 million at the end of the quarter. The company is forecasting it will add another 4 million members in the next quarter ending the year with over 57 million global members.
The company’s growth, and HBO’s decision to launch its own web-based service, come amid a fundamental shift in TV viewing. Analyst eMarketer estimates that 142.5 million people will watch TV shows digitally at least once per month in the US by the end of 2014, accounting for 44.7% of the population.
