Netflix Stock Drops 7% Amidst Revenue Concerns Following Password Sharing Clampdown

Despite exceeding its predictions for new customer additions in the second quarter, Netflix is projecting a slight drop in revenue for the third quarter.

In premarket trading on Thursday, the company’s shares declined by 7%, falling from the previous session’s closing price of $477.59 per share.

Earlier this year, Netflix’s shares had risen by an impressive 62%. However, the company’s decision to crack down on password sharing in certain markets and reduce prices to incentivize users to become paying customers has affected its revenue.

As a result of these changes, 5.89 million new customers joined the platform during the second quarter, significantly surpassing Wall Street’s prediction of 2.07 million. The surge in new customers increased Netflix’s total customer base to 238.4 million.

Nonetheless, the company experienced slower sales growth than anticipated, reaching only 2.7% growth to reach $8.19 billion. This can be partly attributed to foreign exchange fluctuations in operating markets and the impact of aggressive price cuts.

Consequently, the projected sales for the third quarter fell below Wall Street’s expectations, coming in at $8.19 billion rather than the expected $8.67 billion.

While the substantial increase in paying subscribers bodes well for potential revenue growth in the future, experts believe it might not be sufficient to boost Netflix’s stock value.

LightShed Partners analyst Rich Greenfield stated that the results were acceptable but not enough to propel the stock higher, given the previous three months’ performance.

During a call with analyst Jessica Reif Ehrlich from Bank of America, Netflix’s executives called for patience, asserting that the company would soon realize the financial benefits of paid sharing.

“While we’ve made steady progress this year, we acknowledge that there is still work to be done to reaccelerate our growth,” the company expressed in a letter to shareholders.