Media Moves

Coverage: Netflix reports earnings

July 22, 2014

Posted by Liz Hester

Netflix is flying high, adding new subscribers and profit. The company’s original content strategy is working, earning them 31 Emmy nominations. Quarterly results reported Monday were impressive.

Bloomberg Businessweek’s Ashlee Vance reported the quarter’s excellent results:

Netflix’s second-quarter results popped out Monday afternoon, and here are the highlights: The company posted revenue of $1.15 billion vs. $837 million in the same period last year. Its net income hit $71 million, up from $29 million, and it now has more than 50 million customers worldwide—50.05 million, to be precise. Investors gave Netflix (NFLX) a pat on the back for increasing its subscribers at a healthy clip, sending shares 1 percent higher in after-hours trading.

 Emily Steel had this story in The New York Times about the company’s plans for expanding original programming:

Netflix made its first splash in original programming with “House of Cards,” the political drama focused on Washington. Next up, “House of Versailles”?

That was the strategy that Reed Hastings, chief executive of Netflix, jokingly tried to hammer home on Monday as the company made clear that as growth in the United States matures, it has set its sights on international expansion.

Netflix said it had surpassed 50 million total members for its streaming service, including free trial memberships, in the second quarter of this year.

Today, nearly three-quarters of its members are in the United States. In the future, it hopes that a growing portion of its membership will come from around the world.

“Ninety-five percent of people who live on the planet live outside the United States, and generally for global Internet businesses about 80 percent of the usage is outside the U.S.,” Mr. Hastings said in a telephone interview. He added, “We want to bring our services to as many nations as possible.”

The Wall Street Journal story by Shalini Ramachandran and Tess Stynes offered more details about Netflix’s international expansion plans:

On Monday, it said its previously announced plans to expand into six new European countries, including Germany, France and Austria, are set to launch in September. The company’s international markets already include parts of Europe, such as Finland, as well as Latin America. Launching in new markets is expensive, as Netflix has to spend on marketing to build up its brand against established competitors such as Inc. Germany. Netflix also has to invest in TV show and movie rights for the international markets.

Even before the latest expansion moves, Netflix’s international subscriber growth accelerated sharply in the second quarter. Net additions rose to 1.12 million from 610,000 a year earlier. In contrast, growth in the U.S. slowed slightly, to 570,000 from 630,000 a year earlier.

Netflix has grown to become the biggest stand-alone subscription programming service in the U.S., with 35.09 million paid members. It has 48 million paid subscribers globally.

The company recently implemented a price increase, its first since 2011. New U.S. customers will pay $1 more a month, at $8.99, with existing customers charged the higher price after two years. New overseas customers saw a similar increase.

Joan E. Solsman wrote for CNET that the company may have some trouble in the coming months:

However, Netflix’s quest to rule the future of online TV around the global comes at a price. Monday, that cost showed up in its profit expectation for the third quarter. Netflix predicted 89 cents per share in earnings, while Wall Street analysts who track Netflix expected $1.06 on average.

Though Netflix’s business, even abroad, has no problem with profitability, the company has previously warned it will funnel heaps of its domestic profits into aggressive international expansion, most immediately with the big European rollout this year. It reiterated that stance Monday.

It pointed out that even with the new European countries this year, the company still has about two-thirds of the world’s global broadband households out of its reach. “It provides a great opportunity to build on our international success beyond 2014,” the company said. Usually, that’s code for: We’ll keep investing a lot.

The company also projected Monday that it would add 1.33 million domestic members and 2.36 million international ones in the third quarter.

USA Today reported in a story by Jefferson Graham that the company will continue to invest in original content as well:

Beyond Orange and the horror series Hemlock Grove, Netflix has deals with DreamWorks Animation for a series of new shows set to make their debuts next year, as well as a new sci-fi series, Sense8, from the Wachowskis (The Matrix) and J. Michael Straczynski (Babylon 5).

According to J.P. Morgan analyst Doug Anmuth, Netflix expects to double its investment in original content in 2014.

“We expect increasing consumer awareness of Netflix originals and additional originals through the remainder of 2014 to continue to increase Netflix’s content differentiation and drive subscriber additions,” says Anmuth.

Netflix’s plan to take over the content business seems to be working with its many shows sweeping the Emmy’s. It will remain to be seen whether its plans to continue to grow business outside the U.S. will pay off. But right now, consumers are increasingly turning online for entertainment and Netflix is well positioned to grab their business.

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