Netflix shares jump on profit surge, international growth
The online streaming service keeps adding domestic subscribers at a steady clip, and international additions are even better -- but as its stock jumps, it reminds investors to keep things in perspective.
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"In calendar year 2003 we were the highest performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003," CEO Reed Hastings and Chief Financial Officer David Wells wrote in their quarterly letter to investors. "Despite the huge swings in our stock price since our 2002 IPO ($8 to $3 to $39 to $8 to $300 to $55 to $330), we've continued to grow our membership every year fairly steadily. We do our best to ignore the volatility in our stock."
Shares in the company jumped about 10 percent to $392 after hours on Monday as its profit outlook for the current quarter blew past expectations.
Netflix added 1.29 million new US streaming customers in the second quarter, for a total of 31.09 million. In July, it had predicted 30.5 million to 31.3 million for the third quarter. Hype around Netflix's original series, which have hit their stride with its first prime-time Emmy wins and a chorus of word-of-mouth praise for prison dramedy "Orange Is the New Black," had hopes running high about additions.
Its international subscriber ranks swelled by 1.44 million to 9.19 million, beating its July prediction for 8.3 million to 9 million members.
Despite all the attention paid to Netflix's originals strategy, which takes up a fraction of its content budget, the company is pouring all its domestic profits into international expansion. It's important for Netflix to build up awareness of its service abroad, if it wants to keep expanding, as its ability to grow in the US starts to bump up against its saturation point.
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Looking ahead, it expects more subscriber growth in the current period. It projected 32.7 million to 33.5 million domestic and 10.1 million to 10.9 million international customers for the fourth quarter. Netflix CEO Reed Hastings has said he envisions the company reaching 60 million to 90 million US customers eventually, which would lap the subscriber ranks of HBO a few times over.
More importantly for investors, Netflix predicted as much as 73 cents per share in earnings in the current quarter. On average, Wall Street analysts who follow Netflix were only expecting 46 cents.
Overall, Netflix reported a profit of $31.8 million, or 52 cents a share, compared with $7.7 million, or 13 cents a share, a year earlier. Revenue climbed 22 percent to $1.11 billion.
The 52-cents-per-share result was better than Wall Street analysts were expecting on the whole, while revenue was slightly in line with expectations.
Netflix will hold a live video discussion moderated by two analysts, who will pitch questions at Hastings they've collected from submissions by e-mail and Twitter. It will start streaming on Netflix's investor relations' Web site at 2 p.m. PT today.
Update, 2:40 p.m. PT: Added details from quarterly shareholder letter.