Video streaming service company Netflix reported that its new subscribers figure for the third quarter was not able to reach the number forecasted by the company, with Netflix blaming the missed target on the ongoing transition to EMV chip-based cards.
The nationwide migration to utilizing EMV technology in credit cards requires banks to issue new cards, which will have a an embedded microchip. Experts believe that the new technology would help in fighting against counterfeit fraud and improve banking security.
According to Netflix CEO Reed Hastings in a letter sent to shareholders, the switch to EMV technology caused many of the older credit cards in the company's file to no longer work, which resulted in "involuntary churn."
Netflix gained 3.62 million subscribers in the third quarter, taking its total subscriber base up to 69.17 million users. In the United States, Netflix expected to make an additional 1.15 million subscribers, but the company only added 880,000 subscribers in the period from July to September.
David Wells, the CFO of Netflix, said in an interview that the move to the new credit cards meant that users had to re-enter their credit card details. As such, fewer subscribers were able to pay for Netflix's services, leading to disconnected accounts.
"There may be other things going on here but certainly the transition is not helping," Wells said.
However, Netflix's explanation is not being accepted well.
"It's just the dumbest thing I've heard," said Michael Pachter, an analyst for Wedbush Securities.
"I read this Netflix quote and I scratched my head and thought, 'What?'" said The Strawhecker Group senior associate Ken Oros.
Barton Crockett, an analyst for FBR Capital Markets, said that Netflix's issue with the new credit cards is confusing, begging many questions on its effect on the company.
Industry experts, needless to say, are finding Netflix's blame on the transition to EMV credit cards as surprising.
Regular users of Netflix's service would immediately realize that their subscriptions were affected by finding that they were not able to access their accounts. They would have then re-entered their credit card details to continue their subscription.
"Anyone who churns out probably wasn't using the service much in the first place," said Forrester analyst Sucharita Mupuru-Kodali.
