On the same day HBO announced its plan to build an online video offering that will not require a cable TV subscription, Netflix‘s execs addressed the state of their company in their Q3 2014 earnings report. A $59 million net income during that period exceeded expectations, but concerns over underwhelming subscriber growth and HBO’s upcoming challenge caused Netflix stock to fall almost 25%.
The $59 million net income is an 84% increase over the same period last year. Overall, Netflix reeled in $1.2 billion in total revenue, a 38% percent increase over the previous year.
Despite this economic growth, Netflix lagged in terms of its subscriber count. In each of the past three quarters, it met investor expectations, but during Q3, it only added three million new subscribers, well short of the 3.69 million it predicted at the beginning of the quarter.
CEO Reed Hastings and CFO David Wells attributed the stunted growth to Netflix’s recent price hikes, which require new members to pay an extra dollar to subscribe. The price hikes had been in effect during Q2 as well, but Hastings and Wells explained how the popularity of Orange Is The New Black initially balanced out Netflix’s subscriber growth. “We remain happy with the price changes and growth in revenue and will continue to improve our service, with better content, better streaming and better choosing,” they wrote. “The effect of slightly higher prices is factored into our Q4 forecast.”
The announcement of HBO’s new online service–which could bring popular shows like Game of Thrones and True Detective to an on-demand streaming platform–was the main impetus behind the dip in Netflix’s stock price, but Hastings and his team don’t seem worried about HBO. As the report explains, Netflix and HBO should be able to coexist online:
“Starting back in 2011 we started saying that HBO would be our primary long-term competitor, particularly for content. The competition will drive us both to be better. It was inevitable and sensible that they would eventually offer their service as a standalone application. Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we both prosper as consumers move to Internet TV.”
The full Q3 earnings report can be viewed here.