Netflix (NasdaqGS: NFLX) shares plunged on disappointing subscriber additions Thursday, dragging on internet sector-related exchange traded funds.
Netflix revealed that third-quarter profits fell 50% year-over-year due to worse-than-expected streaming growth in the U.S., with only 3.62 million new subscribers during the quarter, as the firm embarks on an aggressive global expansion and investment in original programs, reports Emily Steel for the New York Times.
The weak subscriber count sent NFLX shares falling over 9% Thursday.
Moreover, the company’s reasoning behind its weak third quarter results did not assuage investor fears that NFLX was trading at lofty valuations. Netflix blamed the disappointing numbers on the transition to chip-based debit and credit cards, which some analysts say have been around for a while, Reuters reports.
“The Netflix excuse is laughable,” Michael Pachter, an analyst at Wedbush Securities, told Reuters. “Credit cards expire all the time, and people know how to deal with it. Netflix is seeing declining demand, and churn is a part of that.”
On Thursday, the PowerShares NASDAQ Internet Portfolio (NasdaqGS: PNQI) was up 0.6% and First Trust Dow Jones Internet Index Fund (NYSEArca: FDN) was 0.7% higher. NFLX makes up 7.5% of PNQI and 5.5% of FDN.
PNQI tracks a basket of the largest and most liquid U.S.-listed companies engaged in internet-related businesses. FDN includes companies that generate the majority of their annual income in sales and revenues from the internet.