Netflix (NFLX) – Get Free Report shares slumped lower Thursday following a report that suggested the online streaming service isn’t building a big enough audience in its ad-supported tier to satisfy spending from marketing executives.
Digiday reported that Netflix is having to refund some ad spending commitments amid disappointing subscriber gains in its new ad-supported service, which launched earlier this month. Digiday said Netflix has structured the deals on a so-called ‘pay for delivery’ basis, meaning advertisers were effectively guaranteed a certain level of views in order to justify paying for their promotions.
Netflix CEO Reed Hastings told the New York Times’ DealBook Summit late last month that he regretted waiting until this year to launch the ad-based streaming service, which is priced at a $3 discount to its main media platform.
“I wish we had flipped a few years earlier on that, but we’ll catch up,” he said on November 30. ““I didn’t believe in the ad-supported tactic for us. I was wrong about that. Hulu proved you could do that at scale and offer customers lower prices.”
Netflix shares were marked 4.2% lower in pre-market trading to indicate an opening bell price of $303.51 each, a move that would still leave the stock with a massive 72% gain over the past six months.
Netflix blasted Wall Street’s third quarter earnings forecast in late October, while adding more than 2.4 million new subscribers thanks in part to the success of hits such as ‘Stranger Things’, ‘The Watcher’ and ‘Dahmer – Monster: The Jeffrey Dahmer Story’.
Netflix said it will add around 4.5 million subs over the final three months of the year, essentially matching analysts’ forecasts, with revenues of around $7.776 billion and a bottom line of 36 cents per share. The group noted, however, that starting next quarter, it will no longer guide investors on paid subscriber additions, focusing instead on revenues, margins and earnings.
For the three months ending in October, Netflix posted a bottom line of $3.10 per share, down around 3% from last year but nearly a $1 ahead of the Street, on revenues of $7.925 billion.
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