Updated Jul 17, 2018

What Netflix's big miss means for the new tech economy

Illustration: Lazaro Gamio/Axios

Netflix's stock was down nearly 14% in after-hours trading Monday after the company missed expectations on revenue and subscriber growth. Stocks for almost every other tech company in the streaming business, like Roku, Spotify, Twitter, Facebook and Google, were also down following the news.

Why it matters: Netflix's miss is reigniting debate around whether the new tech economy, where companies are highly valued despite being barely or far from profitable, is sustainable long-term.

"The bulls expected continuing upside to their subscriber guidance ... and when those expectations were cracked, the stock cracked."
— Michael Pachter, managing director of Equity Research at Wedbush Securities to Axios

The miss wasn't entirely shocking. Most analysts agree that Netflix's momentum wasn't sustainable, especially in the U.S., where analysts say the tech giant was beginning to reach a point of saturation.

  • Jill Rosengard, EVP at broadcast research firm Frank N. Magid Associates, tells Axios their research predicted a 2% net decrease in subscribers for Netflix in the U.S. six months ago.
  • The streamer is also facing increasing competition from other subscription video on-demand companies gaining market share, like Amazon, HBO and Hulu, as well as legacy media companies looking to break into the on-demand economy, like Disney and AT&T, says eMarketer principal analyst Paul Verna.

Bullish investors argue that the company will bounce back, and that Netflix is still an attractive investment for the foreseeable future.

"As an investor, we're looking over next five-ten years and Netflix is the number one service that every single person uses in general and probably across the world in the next couple of years. We're not concerned about the business. We love the way the numbers are trending. The only issue anyone has with the stock is the valuation."
— Ross Gerber, Co-Founder, President and CEO of Gerber Kawasaki Wealth and Investment Management on CNBC

Bottom line: The corporate structure of newer tech companies, as well as the pace of tech innovation, has caused investors to reward companies that can scale and adapt to consumer trends quickly, as opposed to companies that focus on consistently delivering profit, like legacy media networks.

  • Because of this, streaming companies are able to invest billions of dollars in creating and buying content to lure viewers from traditional networks, creating a virtuous cycle of dominance.
  • Case in point: Netflix topped HBO for the first time in 17 years with the most Emmy nominations for a network this year.

What's next? None of Netflix's competitors consistently disclose subscriber numbers, but earnings over the next few weeks for AT&T (HBO's new owner), Amazon, and Hulu's owners (Disney, Comcast, Fox and Turner, now owned by AT&T) could shed light on their content strategies.

Go deeper: The rising cost of digital TV

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The aftermath of George Floyd's death: Everything you need to know

A mural outside Cup Foods in Minneapolis, near where George Floyd was killed in an encouner with police. Photo: Steel Brooks/Anadolu Agency via Getty Images

Former Minneapolis police officer Derek Chauvin is in jail under $500,000 bail on charges of third-degree murder and manslaughter after a video of him kneeling on George Floyd's neck for more than eight minutes and Floyd's death catapulted the country's major cities into a state of protest.

The big picture: Floyd's fatal run-in with police is the latest reminder of the disparities between black and white communities in the U.S. and comes as African Americans grapple with higher death rates from the coronavirus and higher unemployment from trying to stem its spread.

Live updates: SpaceX attempts to launch NASA astronauts Saturday

SpaceX's Falcon 9 rocket on the launch pad. Photo: NASA/Joel Kowsky

At 3:22 p.m. ET today, SpaceX is expected to launch NASA astronauts Bob Behnken and Doug Hurley to the International Space Station for the first time.

Why it matters: The liftoff — should it go off without a hitch — will be the first time a private company has launched people to orbit. It will also bring crewed launches back to the U.S. for the first time in nine years, since the end of the space shuttle program.

Follow along below for live updates throughout the day...

Updated 10 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Aïda Amer/Axios

  1. Global: Total confirmed cases as of 11 a.m. ET: 5,968,693— Total deaths: 365,796 — Total recoveries — 2,520,587Map.
  2. U.S.: Total confirmed cases as of 11 a.m. ET: 1,749,846 — Total deaths: 102,900 — Total recoveries: 406,446 — Total tested: 16,099,515Map.
  3. Economy: The future of mobility in the post-pandemic worldGeorge Floyd's killing and economic calamity are both part of America's unfinished business.
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