• Netflix reported $6.15 billion in Q2 revenue compared to the estimate of $6.08 billion, according to Refinitiv
  • It warns “growth is slowing as consumers get through the initial shock of Covid and social restrictions"
  • As a result, Netflix estimates 2.5 million global paid net subscriber additions in Q3 while analysts expect 5.27 million

The price of hot stock Netflix Inc. drove off a cliff after regular hours Thursday -- losing 9.07% -- amid investor dismay over weaker than projected new subscriber numbers in the third quarter after a strong Q2.

Netflix stock ended trading at $527.39, up 0.79%, or 4.13 points after opening at $526.48 and hitting an intra-day high of $535.54. It plummeted $461.20 only few minutes after the close of trading at 4:00 p.m. The stock stayed stuck below $480 for the next few hours and settled at $479.58, a 9.07% loss, at about 8:00 p.m.

Analysts blamed the dramatic drop on the company's Q3 guidance for new subscribers, which was less than half what they expected. Netflix announced 2.5 million global paid net subscriber additions in Q3 while analysts are expecting 5.27 million.

This compares very unfavorably to actual Q2 global paid net subscriber additions, which hit 10.09 million, or 22% larger than the projected 8.26 million, according to FactSet.

In a letter to shareholders, Netflix revealed “growth is slowing as consumers get through the initial shock of COVID and social restrictions. Our paid net additions for the month of June also included the subscriptions we cancelled for the small percentage of members who had not used the service recently.”

The company said the tepid Q3 growth forecast in new subscribers is due to the oversize boost in Q1 and Q2. "As a result, we expect less growth for the second half of 2020 compared to the prior year," wrote Netflix.

For the most part, however, Netflix announced better than expected second quarter operating results. It beat analysts' expectations for revenue and global paid net subscribers but narrowly missed on earnings per share largely due to a one-time charge imposed by California.

Headline news for the day was Netflix's massive surge in users as a lot of people worldwide were kept at home by fears of contagion by COVID-19.

Key Q2 figures show earnings per share (EPS) at $1.59 compared to the projected $1.81, according to a Refinitiv survey of analysts. Revenue came in at $6.15 billion as against the estimate of $6.08 billion, said Refinitiv.

For Q3, Netflix expects revenue of $6.33 billion, below estimates of $6.40 billion. It sees Q3 earnings of $2.09 per share, above analyst estimates of $2.01. The company expects to see a 16% operating margin for the year and 19% for 2021.

“This is a great growth opportunity for us, so any revenue upside we would tend to put into more content for our members, which tends to generate more growth over time,” said CEO Reed Hastings.

A major management announcement saw Chief Content Officer Ted Sarandos promoted to co-CEO, placing him on equal footing with Hastings.

Netflix logos are pictured. AFP / Olivier DOULIERY