October 14, 2015 / 8:14 PM / 2 years ago

Netflix blames weak U.S subscriber adds on new chip-based cards

3 Min Read

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

(Reuters) - Video-streaming service provider Netflix Inc reported third-quarter U.S. subscriber additions below its own forecast, blaming an ongoing transition to chip-based cards for the miss.

Shares of Netflix, known for its original shows such as "House of Cards" and "Orange is the New Black", plunged about 15 percent after the bell, before clawing back to trade down 2.4 percent.

U.S. credit and debit card companies have been shifting to chip-enabled cards ahead of the Oct. 1 deadline mandated for the switch.

For Netflix, the switch meant that many of the older cards on its file no longer worked as the companies gave new cards to their customers, leading to "involuntary churn," as Chief Executive Reed Hastings put it in a letter to shareholders.

"It's just the dumbest thing I've heard," Wedbush Securities analyst Michael Pachter said.

FBR Capital Markets analyst Barton Crockett said the issue around the chip cards is particularly confusing, given that these cards have been around for a bit.

"It begs a million questions," he said.

Netflix said on Wednesday it added 0.88 million U.S. subscribers in the third quarter ended Sept. 30, compared with its forecast of 1.15 million.

"The slowdown in U.S. subscriber growth was particularly disappointing because one would expect that since Netflix just raised rates last week, this number would have been strong," said Crockett.

Netflix increased the subscription rate for some new members earlier this month by $1.00 a month to $9.99 in the United States, Canada and Latin America.

Internationally, Netflix added 2.74 million subscribers, compared with its projection of 2.40 million.

Netflix, which is also battling intense competition from other streaming services such as Amazon.com Inc's Prime Video service and Hulu, has been aggressively building its overseas presence.

The company said it was in the "early stages" of its China entry and said it was "still learning a lot".

Netflix said in July its plans to enter China in 2016 could be delayed.

The company is being more adventurous in terms of moving into news programming and was highly likely that it would be competing with Vice Media in the next two years, company executives said on a post-earnings conference call live-streamed on YouTube.

Vice Media is known for its current affairs coverage for young people.

Netflix forecast adding about 1.65 million customers in the United States in the current quarter. It also said it expected to add about 3.50 million subscribers worldwide.

(This version of the story corrects "would" to "could" in paragraph 14)

Reporting by Anya George Tharakan in Bengaluru

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