Netflix Inc., the top performer in the Standard & Poor’s 500 Index last year, fell as much as 10 percent after reporting fewer U.S. subscribers than anticipated in the fourth quarter.
The shares dropped to $100.79 at 11:17 a.m. in New York, adding to a broader swoon in the market the day after the company reported quarterly results.
The world’s largest paid online TV network added 5.6 million subscribers to its online streaming service in the fourth quarter, including more than 4 million from outside the U.S., according to a statement Tuesday. Yet domestic subscribers increased by only 1.56 million, compared with the 1.62 million average of eight estimates, reflecting the difficulty of signing on more customers in its oldest market.
“It’s just the next 50 million are a little harder than the first 50 million in terms of growth,” Chief Financial Officer David Wells said Tuesday on a conference call.
Netflix must add customers at a steady clip to pay for its growing programming obligations, which will total $5 billion this year. Chief Executive Officer Reed Hastings has pledged material profits once the company completes the international rollout of the only global, on-demand TV network delivered over the Internet.
The outsized international gain had initially eased investors’ concerns. While plenty of countries now offer streaming video services -- there are eight in Spain alone, with HBO about to enter the market -- Netflix has built a reputation that’s helped it gain subscribers quickly in new markets. Viewers are eager to learn when Netflix will arrive in their countries and what programming it will provide, Chief Content Officer Ted Sarandos has said.
In the U.S., the company has long maintained a target of 60 to 90 million customers. The recent deceleration in subscriber additions has convinced most analysts that the number will settle closer to 60 than 90.
“While the international opportunity is larger than the U.S., we believe that the U.S. is the model of what is to come abroad, so clearer evidence of maturity in the U.S. is a slight net negative in that it weighs against blue-sky growth hopes abroad,” Barton Crockett, an analyst with FBR & Co., wrote in a note.
To sustain U.S. subscriber growth and lure new customers outside the U.S., Netflix has been increasing its output of original series and bidding for global rights to other studios’ programs. Netflix released the Aziz Ansari comedy “Master of None” and Marvel adaptation “Jessica Jones” in the most recent quarter. It will release its first original series in French and Italian in 2016.
In all, the company plans to produce 600 hours of original content this year, up from 450 hours in 2015. That will include new seasons of 30 or so original series, 35 new seasons of original series for kids, movies, a dozen documentaries and nine comedy stand-up comedy specials.
Fourth-quarter net income fell 48 percent to $43.2 million, or 10 cents a share, the result of spending on programming and efforts to sign up new customers. Analysts were forecasting profit of 2 cents, the average of estimates compiled by Bloomberg. Sales grew 23 percent to $1.82 billion, compared with projections of $1.83 billion.