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Technology Netflix forecasts weak second-quarter subscriber additions as streaming competition looms

Netflix Inc gave a weak forecast on Tuesday that unnerved investors just as Walt Disney Co and others prepare to escalate Hollywood’s streaming video wars, although the company’s quarterly results beat Wall Street targets.

Shares of Netflix traded down about 1 per cent at US$355.02 after-the-bell, paring losses following a deeper sell-off just after the results were released.

Netflix predicted it would pick up five million new streaming subscribers from April through June. That was below the 5.48 million consensus of industry analysts surveyed by FactSet.

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“What’s making investors nervous is that there are signs of a slowdown in the second-quarter subscriber growth,” said Haris Anwar, senior analyst at Investing.com. “This is made all the more prominent by the looming threat of competition from Disney and Apple.”

From January through March, Netflix reported it added 7.86 million paid subscribers internationally, compared with the average analyst estimate of 7.14 million, according to IBES data from Refinitiv.

The company said it signed up 1.74 million paid subscribers in the United States in the quarter, above the average analyst estimate of about 1.57 million, according to IBES data from Refinitiv.

The quarter included the debut of original dramas Sex Education and Russian Doll, and the company raised prices in the United States, Mexico and Brazil.

In a letter to shareholders, Netflix said it saw “some modest short-term churn effect,” or dropping of its service, in response to the price increases.

Netflix is spending billions to attract new customers while Disney, AT&T Inc.’s WarnerMedia, Apple Inc. and Comcast Corp. plan to launch streaming competitors.

Disney is viewed as one of the strongest rivals thanks to a broad portfolio of franchises popular with children – from Mickey Mouse to Marvel and Star Wars – and a brand trusted by parents. Last week, Disney priced its service at US$7 a month, just more than half the US$13 price for Netflix’s most U.S. popular plan. The Disney+ service will launch in November.

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“We don’t anticipate that these new entrants will materially affect our growth,” Netflix said, “because the transition from linear to on-demand entertainment is so massive and because of the different nature of our content offerings.”

Disney is leading a shift among traditional media companies that had been selling programming to Netflix for years. Now, many have decided to keep their content for their own services as Netflix and another tech giant, Amazon.com Inc., continue to lure new customers to streaming.

Netflix spent US$7.5-billion on TV shows and movies for 2018, and executives have said that amount will grow in 2019. The aggressive spending has led to a tripling of the company’s debt in two years, to US$10.36-billion in 2018, from US$3.36-billion in 2016.

For the first quarter, Netflix said its net income rose to US$344.1-million, or 76 US cents a share, from US$290.1-million, or 64 US cents a share, a year earlier. Analysts on average were expecting 57 US cents a share.

Total revenue rose to US$4.52-billion from US$3.7-billion. Analysts on average had expected revenue of US$4.5-billion.

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