Netflix tops 50 million subscribers worldwide; hits all its number in Q2

By Jim O'Neill on Jul 21 2014 at 2:30 PM
Netflix hits 50M subscribers globally in 2Q

Netflix, literally, came in on the money for the second quarter, announcing revenue of $1.15 per share and revenue of $1.34 billion, both in line with Wall Street’s expectations.

The revenue represents an increase of more than 25 Y/Y, and shares were trading after hours more than 2.5% above close.

And, Netflix continued to do something pay-TV operators have had trouble doing, it added subscribers.

Even in a quarter that can be difficult for operators, the streaming company added 570,000 subs domestically, better than the 520,000 it forecast, and 1.12 million subscribers to its international deployments, again, better than the guidance of 940,000.

“We’ve seen a tremendous adoption of on-demand viewing,” said CEO Reed Hastings. “Consumers around the world (have) really been quite consistent.”

Hasting said that, even during the World Cup, an event that Netflix had expected to increase their subscriber gains, there was no drop off.

“What was incredible was just how straight our line of adds were in Brazil during the World Cup,” he said. “This is an enormous moment in history.”

Overall, Netflix now has 50 million subscribers worldwide to its streaming services, 36.2 million in the U.S., and 13.8 million internationally. Its international subscriber figure has grown 78% Y/Y.

It also has 6.3 million subscribers to its DVD by mail service, down 391,000 as it looks to minimize the business.

In a release, the company said it expected to add another 1.33 million U.S. subscribers in Q3 and 2.36 million internationally, a sign that the company is seeing revenue growth internationally, as well.

The cost of doing business continued to rise for Netflix, which reported content obligations of $7.7 billion, up from $7.1 billion in Q1 and $6.4 billion a year ago.

Its domestic streaming contribution to profit rose to $227 million from $151 million a year ago, growing faster than its spending on content, the company said in a letter to investors. International streaming losses fell to $15 million from $66 million last year. Netflix said all of its international markets showed gains in the quarter and were rapidly moving it toward profitability overseas.

Netflix said Q3 earnings would be near 89 cents per share, below analysts’ $1.06 expectations.

The price hike that new members will be paying this year will also help push ARPU up slowly, Netflix said.

The company reiterated that it plans to launch services in Germany, France, Austria, Switzerland, Belgium, and Luxembourg in September, adding an addressable market of more than 60 million households to the 120 million it already faces.

With the new launch, Netflix addressable international market will be 2X the addressable market in the U.S.

Netflix said the strong growth overseas has further convinced it to aggressively grow its international presence, an addressable market it estimates at more than three-quarters of a billion households worldwide.

CFO David Wells said the 700 million to 800 million addressable market is the number of today’s broadband households, a number that’s growing quickly.

“We like what we see,” said Wells of Netflix’s growth prospects internationally. “We really do see great adoption of Netflix as a product.”

Growth and expansion will be regulated by its global profits, with near break-even as the governor.

Wells said the company would have been “pretty close to break-even” in the second quarter had Netflix not added new markets.

On net neutrality and Netflix’s concerns: Hastings warned that the FCC needed to make certain the Internet didn’t trend toward the cable model.

“In the cable industry, there’s a constant conflict between the network and the content provider” that has often lead to content blackouts for consumers. “We’d hate to see ISPs brownout or blackout a certain site while they tried to extract payments.”

On the nuances of international expansions: Hastings said that every market has its own issues. In Brazil, for example, Netflix faces tremendous payment complexity. “We adapt to the local conditions in each case,” he said.

The challenge for Netflix, he said, “is in becoming a great global company that understands the nuances of various countries. We have a lot of confidence about being able to figure out things once we get started.”

On competition: Hastings said Netflix would continue to focus on streaming performance and growing its TV catalog. And, he said, the difference between it and many competitors in the U.S. and abroad is that “it’s everything for us,” as opposed to a company like Amazon offering Amazon Instant Price Video as a part of its business.

“At the end of the day,” he said, “there may well be room for several of these service with different kinds of content.

Just as HBO and Showtime compete for a part of the audience and not necessarily against each other, “we’re like that in a new market,” Hastings said.

Follow me on Twitter @JimONeillMedia

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