Netflix shares off 9% as customer growth slows while costs increase

Shares in Netflix were down by about 9 per cent in pre-market trading Tuesday as investors digested the company's latest quarterly earnings.

The stock was changing hands below $100 US a share on Tuesday, well below Monday's close of $108.40. After stock markets closed on Monday, the company revealed it took in $1.96 billion US in sales during the quarter, and turned a profit of $27.7 million. 

Both figures were within range of what analysts were expecting, but investors focused on another set of numbers with a decidedly gloomier outlook.

Customer growth slowing

The company said it expects to add 2.5 million new customers during the next quarter, a much lower figure than the almost 7 million customers it added during the first quarter.

Part of the reason for that is that after two years of grandfathering prices at $7.99, Netflix expects to hike monthly fees for many longtime users starting next month.

While the company may have the same appeal to new customers, analysts and even the company say that may cost them existing ones who won't be willing to pay the higher monthly fee of up to $11.99 for the company's premium package, the one that allows streaming on up to four devices at once in high definition.

At the same time as it faces dwindling customer numbers, the company is also seeing its own costs rise as the costs to license content or produce its own are inching higher. Netflix expects to spend $6 billion US on content this year, an increase from $5 billion in 2015.

Netflix began mainly by buying the rights to shows created by television networks, but in recent years some of its most popular offerings have been made in-house, like the political thriller House of Cards and the female-led comedy Orange Is the New Black.

In 2015, Netflix put out 450 hours of its own shows and movies, compared to 401 from Time Warner's HBO, according to numbers from both companies. This year, both Netflix and HBO promise roughly 600 hours of original material.

Netflix faces another problem in the form of Amazon, which unbundled its own streaming service from the Prime delivery service on Monday. Starting this quarter, Amazon will charge $8.99 a month for streaming the company's content on two devices at once. Previously, a customer would have to sign up for the $99-a-year Amazon Prime delivery service to get the streaming service, but now they can sign up for the streaming option on its own.

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