Shares of Netflix fell by 13% on Tuesday after the company reported disappointing earnings for the second quarter of 2016.
The most concerning statistic for investors was subscription growth. Analysts were expecting Netflix to add 2.5 million new subscribers, representing a 24% decline from the prior year. Instead, the internet television network delivered just 1.7 million new members.
Netflix CEO Reed Hastings chalked up the nearly fifty percent year-over-year decrease in subscribers to several factors. At the top of the list was a recent price increase, which Mr. Reed believes had a disproportionate affect on the company’s earliest subscribers.
In addition, Mr. Reed mentioned increased competition for Olympic viewers and challenges associated with expanding into international markets as issues that affected subscriber growth.
Mr. Reed believes the recent subscriber trend is a temporary blip and says that the opportunity in front of the company is as big as ever.
Netflix’s 47 million U.S. subscribers is more than any other domestic cable provider. Because of this, the company must rely on international markets to drive growth. It has introduced its service to 130 new markets, but has yet to penetrate the world’s most populous country—China.
Netflix reiterated its interest in entering the massive market, but acknowledged that it faces a problematic regulatory climate.
Nonetheless, the company is in the early stages of creating local content for other highly populated countries such as India and Brazil. Analysts who are bullish on the company are far more focused on Netflix’s execution in these markets than they are on a single quarterly earnings report.