Netflix (NASDAQ:NFLX) has added fewer than expected subscribers in the first quarter according to the latest revelations made by the company. Domestically Netflix managed to add 1.42 million subscribers, while the estimate was 1.5 million. Internationally, the figure stands at 3.68 million, against the anticipated 3.68 million.
Netflix reported first-quarter revenue of $2.64 billion on Monday. The per share earnings stand at $0.40, which is more than the expected $0.37.
Poor Content is Pulling Down Netflix
Analysts are saying there are two reasons for this poor performance – increased competition, and the generally poor standard of content. Paul Verna, eMarketer senior analyst says, “It wasn’t a strong quarter for Netflix in terms of content. I think this is going to increasingly drive numbers”.
Many analysts are also saying that it can get more difficult for Netflix to turn it around with Amazon and Hulu beginning to show many critically acclaimed shows. Plus, there is CBS All Access, Sling TV and DirecTV that are also offering streaming entertainment options as well. Many of these competitors are doing better than before at the cost of services such as Netflix.
Rob Sanderson, an analyst with MKM Partners has issued a note to the investors of Netflix separately, saying their content is poor than the previous quarters. He also says the business is likely to suffer because they don’t have a solid fan base for their show.
Netflix Decides to Spend More Than $15 Billion on Content
Of course, Netflix knows too that the quality of their content is less than satisfactory. That is why they have made an obligation to spend more than $15 billion on content. This was also revealed on Monday. A year back, this was $12.3 billion.
Michael Graham, managing director and senior internet analyst at Canaccord Genuity says this is a long-term plan of the company. “Netflix is actually trying to manage down the amount of content that it’s licensing from other people, Graham adds. So the plan is to build and produce their own content that they will own instead of buying it from others. Perhaps this is one way of ensuring quality. But more importantly, by doing this, Netflix will also manage to avoid paying royalties.
However, some analysts are not quite sure whether spending more will necessarily give better results. The competitors are also building up their content. Netflix (NASDAQ:NFLX) has just one revenue stream. There is nothing the company can fall back on, unlike Amazon.