Netflix U.S. Subscriber Growth Lags

October 15, 2015 World Screen
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LOS GATOS: In its Q3 results, Netflix revealed that U.S. subscriber additions were below its forecast, pointing to the ongoing transition to chip-based credit and debit cards as a reason for "higher-than-expected involuntary churn."

Global membership grew 3.62 million to 69.17 million members, compared to prior year growth of 3.02 million, and a forecast of 3.55 million. Operating income was $74 million, compared to prior year of $110 million and a forecast of $81 million. "With a successful launch in Japan, and our launches next week in Spain, Italy and Portugal, we remain on track to become global by the end of 2016," said CEO Reed Hastings and CFO David Wells.

While global growth was on target with projections, Netflix's expectations were high for U.S. growth and low for international. The service added 0.88 million new U.S. members in the quarter compared to 0.98 million prior year and a forecast of 1.15 million. Netflix said that this stemmed from involuntary churn due to an inability to collect, citing difficulties with the new chip-based credit and debit cards. International net add growth totaled 2.74 million compared to 2.04 million in the prior year and a 2.40 million forecast.

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For Q4, Netflix anticipates 1.65 million U.S. net adds and U.S. contribution margin of 34 percent vs. 28 percent in the year-ago quarter. It continues to target a 40 percent U.S. contribution margin by 2020. As previously indicated, the company expects international contribution losses will grow sequentially in Q4 as the service launches in Spain, Italy and Portugal. Expansion to South Korea, Hong Kong, Taiwan and Singapore are set for early 2016.

"Our plan remains to run around break-even through 2016 and to deliver material profits thereafter," Hastings and Wells said.