By and large, market observers came in yesterday expecting Netflix (NASD: NFLX) to post disappointing earnings that would push the stock down. Looking back now, only one of those two things happened.
Netflix’s second-quarter earnings more than quadrupled. Many are attributing this to the firm continuing to reinvent itself with original program, in particular this quarter’s revival of the comedy series “Arrested Development” attracted more subscribers. It seems George Bluth was right, there really always is money in the banana stand.
Netflix picked up about 630,000 U.S. subscribers during the three months ending in June. That performance was slightly above the mid-range target set by Netflix Inc.’s management in April. The Los Gatos, Calif., company had predicted it might end the period with as many as 880,000 more subscribers — a goal that many investors evidently were hoping would be reached.
Expectations had been raised by the Memorial Day weekend release of 15 new “Arrested Development” episodes and while it clearly added subscribers, it wasn’t as large as hoped. The comedy starring Jason Bateman and Michael Cera had built a cult following before its cancellation by the Fox network in 2006 after three seasons.
In a letter to shareholders, Netflix CEO Reed Hastings credited “Arrested Development” for providing a “small but noticeable bump” in subscribers. He praised the company for being able to add more subscribers during the first half of this year than it did last year, despite intensifying competition from other Internet video services run by Amazon.com Inc. and Hulu.
Netflix has added 2.7 million subscribers so far this year, which is up from 2.5 million at the same time last year. The second-quarter gains leave Netflix with 29.8 million U.S. subscribers to an $8 monthly service that streams video to Internet-connected devices. Netflix also added 605,000 international subscribers in the second quarter to boost its total customers outside the U.S to 7.75 million. Despite the tales of their demise, it seems those calls were premature.
Emblematic of the changing times, Netflix came to prominence with it’s DVD by mail rental service, but that original core product continues its demise, as the business model shifts towards streaming. Netflix lost another 475,000 DVD subscribers in the second quarter, leaving the company with 7.5 million on that side of its service. Netflix has been pushing people toward streaming anyhow because the company believes DVDs are destined for obsolescence and doesn’t want to spend a lot on the business any longer.
Netflix earned $29.5 million, or 49 cents per share, in the quarter, up from $6.2 million, or 11 cents per share, a year earlier. Netflix’s revenue climbed 20 percent from last year to $1.07 billion, mirroring analyst projections. In the current quarter ending in September, Netflix predicted it will add 690,000 to 1.49 million U.S. subscribers.
