Netflix is blaming slow US growth on the switch to chip-based credit cards

The culprit in Netflix’s earnings miss?
The culprit in Netflix’s earnings miss?
Image: AP/Matt Rourke
We may earn a commission from links on this page.

Netflix shares are down 7% in after-hours trading after the company reported its third-quarter results.

One cause of the investor shock: The company added just 880,000 US streaming subscribers in the quarter. That’s down from 980,000 in the same period a year ago, and below its forecast of 1.15 million (pdf).

Why the miss? In his letter to investors, Netflix CEO Reed Hastings partially blamed America’s recent switch to chip-enabled credit cards. As credit card companies send new cards to their customers, some have been issuing new numbers, as well. And if people forget to update their credit card number with Netflix, they can’t pay their bill and become what Hastings called “involuntary churn.”

There are few things more annoying about getting a new credit card—or replacing one that has been stolen—than updating recurring subscriptions to the new number. It’s plausible that many people could have forgotten to update their Netflix account. And perhaps some customers on the fence about keeping their Netflix subscriptions used the annoyance of changing their card number as an excuse to stop paying altogether.

For what it’s worth, a quick survey of the Quartz newsroom revealed some people whose numbers had been changed in the process of getting their chip-based cards and others, like myself, who got to keep the same number.

If this is really a thing, it will presumably also affect other subscription-based services and not just Netflix. As Netflix is one of the first US companies to report third-quarter results, perhaps we’ll hear more about it this earnings season.