Blame mediocre shows for Netflix's slow subscriber growth during Q1

Key Points
  • Netflix subscriber additions were lower than expected: Domestically 1.42 million vs. 1.50 million estimated, while internationally 3.53 million vs. 3.68 million estimated
  • Analysts blame lackluster new content during Q1 and more competition
  • Netflix is bullish on subscriber adds for Q2
Graham: A 'little bit of lumpiness' for Netflix
Graham: A 'little bit of lumpiness' for Netflix

Netflix's lackluster subscriber addition numbers is mostly due to its less than stellar content offerings during Q1, analysts say.

"It wasn't a strong quarter for Netflix in terms of content," said eMarketer senior analyst Paul Verna. "I think this is going to increasingly drive numbers."

And it may only get harder for the streaming company as more competitors like Amazon and Hulu, which also have a lot of critically acclaimed shows, begin to hit their stride.

Netflix reported $2.64 billion in Q1 revenue after the bell on Monday, in line with a Thomson Reuters consensus estimate. It posted earnings per share of $0.40, ahead of the estimate of $0.37.

However, it missed on its subscriber projections. The company added 1.42 million domestic customers, below the 1.5 million estimate and guidance. Internationally, numbers were also lower with 3.53 million users signing up, compared to the 3.65 million estimate and 3.7 million guidance.

MKM Partners analyst Rob Sanderson pointed out in a note to investors Netflix's Q1 programming wasn't as strong as its previous quarters, especially because it didn't have the benefit of having a solid fan base for its show.

Many of the original series added this quarter were in their first seasons, including "A Series of Unfortunate Events," "Santa Clarita Diet," "Iron Fist," meaning the would have had to entice a new audience.

Netflix's biggest success, "13 Reasons Why," debuted the last day of Q1.

The struggle to add subscribers could also boil down to a more competitive landscape, Verna said. Not only do services like Amazon and Hulu also offer award-winning programming, but over-the-top (OTT) services like CBS All Access, Sling TV and DirecTV offer streaming entertainment options as well. Customers are only willing to spend so much disposable income on these forms of entertainment, Verna added.

"It's fair to think that those competitors are doing better and better," said Verna. "They largely figured out how to do the whole original series binge viewing thing that Netflix pioneered. Others have got very good at it."

Verna said the subscriber additions miss is not as "dramatic" as it sounds, and could be chalked up to the regular ups and downs of media companies. Netflix said in a letter to investors variance in subscriber numbers could be attributed to "noise" in the adoption of internet TV.

The company also said its lower numbers could be due to moving some shows to Q2, like "House of Cards." It will return soon, as well as its highly-popular "Orange is the New Black." It's bullish on adding subscribers next quarter, predicting 3.2 million net additions compared to 1.68 million the year before.

Watch: Netflix expects to hit 100M members this weekend

Netflix: Expect to hit 100M member mark this weekend
Netflix: Expect to hit 100M member mark this weekend