The company finished its third quarter with 23.79 million U.S. subscribers compared with the 24.59 million in had during its second quarter. In Q3, Netflix announced a 60% price increase, which went into effect in September. The company had predicted in a letter to shareholders that the impact of the price increase would be limited and the company would finish the Q3 with 25 million total subscribers. (The company lowered that estimate to 24 million in September, though.) Investors reacted by continuing to punish Netflix's already-battered stock, sending it down 27% in after-hours trading.
That, despite a relatively sound earnings report: Netflix reported $822 million in revenues for the quarter and earnings per share of $1.16, which beat estimates of $811.79 million and earnings per share of 96 cents, respectively.
In a letter to shareholders, Netflix acknowledged that it handled communication around the price increase poorly:
"$7.99 for unlimited streaming and $7.99 for unlimited DVD are both very aggressive low prices, relative to competition and to the value of the services, and they are the right place for Netflix to be in the long term. What we misjudged was how quickly to move there. We compounded the problem with our lack of explanation about the rising cost of the expansion of streaming content, and steady DVD costs, so that … many perceived us as greedy. Finally, we announced and then retracted a separate brand for DVD. While this branding incident further dented our reputation, and caused a temporary cancellation surge, compared to our price change, its impact was relatively minor."
Image courtesy of Flickr, Ross Catrow