Netflix Soars to 65.6 Million Subscribers as New Shows Shine

Netflix Surges As Subscriber Growth Soars

Netflix Inc., the top stock in the S&P 500 this year, said its Internet TV service grew to 65.6 million subscribers in the second quarter, thanks to popular original shows such as “Daredevil” and “Orange Is the New Black.”

The strongest growth was in international markets, where subscribers jumped 2.37 million to 23.3 million, the company said Wednesday on its website. That beat the 1.94 million average of five analysts’ estimates compiled by Bloomberg News. Domestic subscribers grew by 900,000 to a total of 42.3 million, beating estimates of 636,000.

The results highlight Netflix’s progress in building the first global Internet TV channel, fueled by new shows such as “Daredevil,” its first program with Walt Disney Co.’s Marvel Studios, and “Sense8,” created by the directors of “The Matrix.” Spending on films and TV shows will exceed $6 billion next year, the company said.

“Netflix is a subscriber momentum story,” said Paul Sweeney, a Bloomberg Intelligence analyst. “As long as the company continues to add subscribers domestically and internationally, the bulls will be happy. The second-quarter results and third-quarter outlook show” continued subscriber growth momentum.

Netflix, which split 7-for-1 Wednesday, rose 9.5 percent to $107.50 in extended trading after results were announced. The shares fell 2.2 percent to $98.13 at the close in New York and have doubled this year.

Global Expansion

Netflix, based in Los Gatos, California, had its biggest-ever release of new original shows in the quarter.

The company expanded to New Zealand and Australia in March, and will offer its service in Japan, Spain, Italy and Portugal later this year. International subscribers now account for 31 percent of Netflix’s streaming revenue, and the company said it’s profitable in several of the foreign territories where it first offered service.

Growth in Japan will be slow at first, Chief Executive Officer Reed Hastings said on a conference call with analysts. It has the potential to be one of the service’s best markets in the long run, he said.

“When Japanese society embraces a brand, it’s a very deep connection,” Hastings said. Netflix will avoid some of the early struggles rival streaming service Hulu had in Japan by keeping prices low and offering more localized video.

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China Card

Netflix has said it will mostly complete its worldwide rollout by the end of 2016, expanding into an additional 150 countries. The company reiterated it’s weighing when to enter China, the world’s most populous country, and now hopes to introduce service there next year, Hastings said in an interview. It’s seeking a local partner as well as government approvals.

Second-quarter net income fell to $26.3 million, or 6 cents a share, from $71 million, or 16 cents, a year earlier. Analysts were projecting a post-split profit of 4 cents, the average of 32 estimates compiled by Bloomberg.

The company reported a loss of $92 million from international streaming, less than the $101 million projected in April.

In his letter to investors, Hastings said the company remains “committed to running around break-even globally on a net income basis through 2016 and then to deliver material global profits in 2017 and beyond.”

International Audience

Revenue for the quarter rose 23 percent to $1.64 billion, compared with analysts’ projections of $1.65 billion.

Several analysts have projected Netflix will surpass 100 million subscribers by 2020. Netflix reached 5 million subscribers in Latin America last year. Digital TV Research Ltd. projects it will top 7 million there and 5 million in the U.K. by year end.

For the third quarter, Netflix projects it will add 3.55 million new subscribers, for a total of 69.1 million. The company forecasts net income of $31 million, or 7 cents a share.

Analysts forecast 3.34 million new customers worldwide. They estimate profit of 5 cents a share for the third quarter on sales of $1.73 billion.

The company is expanding its production and acquisition of original programming to sustain that growth. In October, Netflix will release its first original feature film, “Beasts of No Nation,” for streaming customers and in theaters. Adam Sandler’s “The Ridiculous Six” comes out in December.

Netflix has acquired more Spanish-language programming for its U.S. viewers, and will produce and acquire localized videos for many of its new territories.

Netflix Q2 2015 Earnings Teleconference
Netflix Q2 2015 Earnings Teleconference

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