Netflix Shouldn’t Take a Victory Lap Just Yet
Netflix Inc. has shown an uncanny ability in the past to bounce back from an unexpectedly poor showing in one quarter with a better-than-projected result the next time around. And so it was on Tuesday: After alarming the market with its estimate in April of a drop of 2 million subscribers for the second quarter, the video streaming giant reported a significantly smaller loss of 970,000 subscribers. Investors celebrated, pushing up Netflix shares as high as $225 in after-hours trading after they rose 5.6% during the regular session to $201.63. After the hammering Netflix stock has taken in recent months, it was almost as if all was forgiven.
Well, hold on a second. If you look at Netflix's subscriber numbers regionally, things don't look so healthy. The only area where Netflix showed any real growth was Asia Pacific, where it has a smaller presence than elsewhere. In its two biggest regions, North America and Europe, the Middle East and Africa, Netflix's subscriber losses increased meaningfully.
In North America, for instance, Netflix lost 1.3 million subscribers, about double the loss of the first quarter. Ditto EMEA.
It's never good to be shrinking in your biggest and richest markets. But the North American losses in particular reinforce the idea that Netflix blundered by raising prices as competition from the likes of Walt Disney Co., Apple Inc. and Warner Bros. Discovery Inc. was increasing. That idea gained currency after the first-quarter results. Netflix disagrees: Its executives have disputed the idea that price increases increased churn, although it was hard to take them seriously before and harder now. (They doubled down on that view on Tuesday, stating in their quarterly shareholder letter that “retention
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