Netflix posts earnings of 9 cents a share vs. 2 cents expected

Netflix earnings beat but shares sink
Netflix earnings beat but shares sink

Netflix shares dropped as much as 15 percent in after-hours trading after the company posted subscriber numbers that missed its own guidance.

This news overshadowed the movie-streaming company's earnings results that beat analysts' expectations on Monday.

The company said it added 1.7 million subscribers during the quarter, below its own expectations of 2.5 million.

For the quarter, Netflix added 160,000 memberships in the U.S. and 1.52 million internationally. The streaming giant had said in April it expected to add 500,000 members in the U.S. and 2 million internationally.

Despite the disappointment, .

Netflix said that membership churn increased slightly during the quarter. The company said that this increase coincided with press coverage of it "un-grandfather[ing] longer tenured members."

"We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering. Churn of members who were actually un­grandfathered is modest and conforms to our expectations," the company said in a statement.

CEO Reed Hastings said that he's confident that this churn is what hit the subscriber numbers.

"Well the obvious explanations other than this are competition, which we're pretty confident that it is not a factor because we got this slight uptick in churn in multiple countries the same week and—of course that's not a competitive signature—including Canada, where many of the other SVOD services don't operate," he said in a conference call with investors on Monday.

CFO David Wells said that this un-grandfathering process is expected to finish in the fourth quarter.

For the third quarter, Netflix said it expects to add 2 million subscribers internationally.

The streaming service posted second-quarter earnings per share of 9 cents on revenues of $2.11 billion. Analysts expected the company to post earnings of 2 cents a share on $2.11 billion in revenue, according to a consensus estimate from Thomson Reuters.

The stock has struggled this year, falling more than 13 percent, as analysts raise concerns about growing competition, slowing subscriber growth and the company's cash burn. Hastings has said that the company expects to spend about $6 billion in cash on content in 2016.

Larry Haverty of Gabelli Funds told CNBC's "Closing Bell" that while he is a customer and thinks "it's a nice business," the stock may fall even further.

"The company is just not generating enough cash. The content costs are increasing. I think the international expansion is low quality," he said on Monday.

Haverty also said that Netflix has more challenges ahead as the competition gets tougher.

"Competition is only going to get worse in this business. Content is being created at an exponential rate. And the valuation is very, very high. … I look at it as the coyote just went over the cliff and it's kind of an ugly finish," he said.

Barton Crockett of FBR Capital Markets told "Closing Bell" that while Netflix still has growth potential, there's still plenty to feed investor fears.

"I think Netflix is a company that, if they can keep their cost structure stable and grow their subs, you could see explosive earnings growth. But I think the key thing there is that these guys understand what their sub growth and pricing leverage will be and if they misperceive that they can drive their costs up so high that there can be a real earnings kind of issue potentially," Crockett said on Monday.

"I think these guys believe in their business but I worry about execution when they are maturing and this report kind of I think feeds into those fears that I have."

— CNBC's Michelle Fox contributed to this report.