October 15, 2014 / 8:29 PM / 3 years ago

Netflix's U.S. growth slows, shares plunge

The Netflix logo is shown in this illustration photograph in Encinitas, California October 14, 2014. REUTERS/Mike Blake

(Reuters) - Netflix Inc signed up fewer video streaming subscribers than forecast for the quarter that ended in September as its U.S. growth slowed markedly, sending its shares plunging as much as 27 percent.

The company, which operates in nearly 50 countries, blamed a $1 price hike, to $8.99 a month, for discouraging new sign-ups. It lured 3.02 million new streaming customers globally, versus the 3.69 million it projected in July.

Netflix attracted about 980,000 new customers in the United States, its largest market, down from 1.29 million in the same period a year earlier.

The news came after Time Warner Inc’s HBO said on Wednesday it will offer new competition next year with a streaming service that does not require a pay TV subscription.

“Year-on-year net additions in the U.S. were down,” the company said in a quarterly letter to shareholders. “As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago.”

Shares of Netflix fell 25 percent to $333.53 in after-hours trading, from its close of $448.59 on Nasdaq.

Netflix, waving off fears that a standalone HBO would draw users away, argued in its letter that many will subscribe to both services because they offer different shows.

“It is likely we both prosper as consumers move to Internet TV,” the company’s letter said.

Netflix, the world’s largest video-streaming service, has invested in original series such as “House of Cards” and “Orange is the New Black” to compete with rivals such as HBO, Amazon.com Inc and on-demand offerings from pay TV providers.

Netflix also recently announced a push into original movies, making deals to finance four Adam Sandler films and a sequel to the Oscar-winning martial-arts drama “Crouching Tiger, Hidden Dragon.”

The HBO news, overall stock market weakness, and the subscriber forecast miss likely sparked the selloff in Netflix shares, Hudson Square Research analyst Daniel Ernst. But he said Netflix has proven it can bounce back from disappointing quarters.

“They have got a good track record in growing past this turbulence,” said Ernst, who has a “buy” rating on Netflix shares.

The company forecast it will add 4 million streaming subscribers in the fourth quarter.

Netflix is spending to ramp up its service in more countries. The company expanded into six European countries, including France and Germany, in September.

Netflix’s international subscribers grew 72 percent to 15.84 million from a year earlier.

Net income rose to $59.3 million, or 96 cents per share, from $31.8 million, or 52 cents per share, in the year-ago period.

Revenue rose about 28 percent to $1.41 billion.

Analysts had expected a profit of 93 cents per share on revenue of $1.41 billion, according to Thomson Reuters I/B/E/S.

Reporting by Lisa Richwine in Los Angeles and Soham Chatterjee in Bangalore; Editing by Kirti Pandey, Simon Jennings and Richard Chang

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