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Netflix Looks To Video Game Boost as Subscriber Growth Slows: Shares Dip

Co-CEO Reed Hastings said the addition of video game options would "enhance" the streaming platform's existing slate of movies and television shows.

Netflix  (NFLX) - Get Report shares slipped lower Wednesday after the entertainment streaming service posted a rare decline in north American subscribers over the second quarter, and forecast weaker-than-expected additions over the summer months amid intensifying competition and a post-pandemic surge in outdoor activity. 

Netflix lost 430,000 north American subs, the company said in its second quarter earnings report last night, although its total worldwide additions of 1.54 million topped Street forecasts and took its overall total to 209 million. 

Looking into the current quarter, Netflix is aiming to add 3.5 million new customers, compared to a Street consensus of 7.34 million, with revenues projected in the region of $7.32 billion.

Perhaps in response to the slower subscriber growth figures, Netflix added further detail to its plans to include video game offerings alongside its streaming service.

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"We're pushing on that, so think of that as making the core service better." co-CEO Reed Hastings told investors on a conference call late Tuesday. "And then, there's a number of supporting elements, consumer products, various shopping where we're really trying to grow those to support the title brands to get our conversations up around each of the titles so that the Netflix service becomes must-have."

"So they're not a profit pool of any material size on their own, but they are helping -- the reason we're doing them is to help the subscription service grow and be more important in people's lives, so I would say really, we're a one product company with a bunch of supporting elements that help that product be an incredible satisfaction for consumers and a monetizing engine for investors," he added.

Netflix shares were marked 2.3% lower in early trading Wednesday to change hands at $518.67 each, a move that would nudge the stock's year-to-date decline to around 4%.

Netflix reported earnings of $2.97 per share on revenue of $7.34 billion. Analysts were expecting the company to report earnings of $3.18 per share on revenue of $7.32 billion. Netflix also said that its operating profit has reached $2 billion per quarter so far in 2021.

"We're cautiously optimistic for Netflix's entry into video games, but expect it will be several years before success can be judged, barring a surprise hit game that can drive incremental subscribers," said BMO Capital Markets analyst Daniel Salmon, who carries an 'outperform' rating with a $700 price tag on the stock. 

"More important near-term, we think a strong 2H content slate can help guide Netflix through choppy re-opening trends, while management continues to lean into the share buyback and support the stock," he added. "With tough comps behind it and free cash flow ramping despite early video game investment, we think investors should be aggressively building positions once again."