Far-left Netflix had a disastrous second quarter that saw new subscriptions fall short of expectations, causing shares of the streaming entertainment company to plummet by as much as 12 percent in after-hours trading on Thursday. The company cited growing competition from TikTok, the Chinese-owned video app that is hugely popular with Gen Z.
Netflix’s bad quarter was especially surprising since the vast majority of movie theaters have yet to re-open due to the continued coronavirus lockdown
The company reported 10.1 million news subscriptions for the quarter, missing analyst expectations of around 12 million. It also forecasted a mere 2.5 million new subscribers for the third quarter, which also disappointed analysts.
Wall Street sees subscriber growth has the most accurate gauge of Netflix’s financial health since it is closely correlated with future cash flow.
Netflix attempted to explain the misses on a series of factors. “Growth is slowing as consumers get through the initial shock of Covid and social restrictions,” the company said in a note to investors.
It also cited TikTok as a competitor. “TikTok’s growth is astounding, showing the fluidity of internet entertainment.”
But Netflix said it wasn’t too concerned about its rivals. “Instead of worrying about all these competitors, we continue to stick to our strategy of trying to improve our service and content every quarter faster than our peers.”
TikTok is owned by the Chinese company ByteDance, which recently hired Disney veteran Kevin Mayer, who headed Disney’s streaming efforts and oversaw the launch of Disney+ last year. Mayer will lead TikTok as CEO and take on the role of chief operating officer at ByteDance.
Netflix also announced that chief content officer Ted Sarandos has been promoted to co-CEO alongside Reed Hastings. Sarandos has been one of Hollywood’s most reliable Democrat fundraisers, supporting the campaigns of Barack Obama and Hillary Clinton.
Netflix saw a jump in new subscriptions during the first quarter as the first series of coronavirus shutdowns took effect, helping the company to bring in 15.8 million new customers between January and March. But the company warned that the rest of the year would likely fail to match that pace of growth.
The company maintains strong ties with former first couple Barack and Michelle Obama thanks to a lucrative production deal that has resulted in the documentaries American Factory and the poorly reviewed Becoming, the latter of which followed Michelle Obama during her recent book tour.
Former Obama national security advisor Susan Rice currently sits on Netflix’s board of directors.