Streaming giant Netflix picked an unusual culprit for failing to meet Wall Street projections for third-quarter U.S. subscriber growth, blaming the ongoing transition to chip-based credit cards.
Netflix customers pay for streaming via monthly charges on their credit cards, so if the cards are cancelled for any reason, Netflix has to scramble to regain those clients.
U.S. credit and debit card companies have been shifting to chip-enabled cards ahead of the Oct. 1 deadline mandated for the switch. Many brick-and-mortar stores are lagging behind the shift, but it doesn’t matter for online purchases.
For Netflix, the switch meant that many of the older cards on its file no longer worked as the companies gave new cards to their customers, leading to what Netflix Chief Executive Reed Hastings coined as “involuntary churn.”
But many observers and analysts are not buying it. “It’s just the dumbest thing I’ve heard,” Wedbush Securities analyst Michael Pachter told Reuters.
Netflix signed 880,000 new domestic subscribers in the third quarter, according to a statement posted on its website Wednesday. That figure missed the 1.25 million average of eight analysts’ projections compiled by Bloomberg.
“This is a subscriber driven story so any slowdown, for whatever reason, is a cause for concern for Netflix investors,” Paul Sweeney, an analyst with Bloomberg Intelligence, said in an e-mail quoted by Bloomberg.