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Digital Media

Netflix's road to global dominance hits a speed bump

For the first time, Netflix made more of its money streaming outside the US, but subscriber growth is weak.

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Netflix's Spanish original series "La Casa de Papel" has become popular with members outside its native language. 

Netflix

Netflix can stake claim to being the media king of the world, booking more revenue from streaming outside the US than within it for the first time. Still, the streaming-video company reported lower-than-expected overall subscriber growth in its second-quarter report on Monday, missing its own guidance by more than a million members. 

Wall Street was unforgiving at first. Netflix shares tanked as much as 14 percent in after-hours trading. But in regular trading the following day, shares walked back most of those declines. The stock was down 5.7 percent at $377.75, again lifting the company's market value higher than traditional media giant Disney. 

A milestone for Netflix's ambitions as a global powerhouse, the revenue tipping point underscores similar changes in the shows and movies available to watch worldwide. With more of its money coming from abroad, more of Netflix's originals cater to specific countries and regions. Netflix, for example, released Sacred Games, its first original series from India earlier this month. 

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Netflix has found its locally-targeted originals cross borders easily. For example, Brazilian dystopian thriller 3%, Spanish heist series La Casa de Papel (marketed in English on Netflix as Money Heist) and German sci-fi mystery Dark all have had global appeal. Netflix has even invested in expansive subtitling and dubbing systems to make its international productions available for the widest audience outside each title's native language. 

In a letter to shareholders Monday, Netflix said said The Rain, a Danish original thriller, was one of the service's "biggest non-English original productions yet with viewing all over the world." The company didn't provide specific viewership figures. 

"This serves as another data point that our international originals can be important to specific countries and regions and also play well outside of their home markets," the company said. 

The report comes as Netflix knocks the crowns off the heads of traditional media titans. During the latest quarter, Netflix unseated Disney as the most-valuable media company in the world by market value. Last week, Netflix beat HBO for the total Emmy nominations, unseating the premium cable network's 17-year streak on top. 

In its results, Netflix reported its international subscriber base grew to 72.76 million members, missing the 73.29 million the company had forecast. In the US, Netflix reported 57.38 million, shy of its 57.91 million guidance.

Looking ahead, Netflix expects to add 4.35 million streaming members abroad and 650,000 in the US in the current quarter. 

Guggenheim analyst Michael Morris said the results would likely make investors question whether Netflix is a "superhero or mere mortal," but ultimately he saw little reason to change his outlook for consumers signing up and using Netflix.

Wedbush's Michael Pachter, a longtime skeptic about Netflix's value for investors, said the weaker-than-expected subscriber numbers suggest slowing growth. 

The streaming service faced a tough release schedule compared to the same quarter a year earlier. Last year, 13 Reasons Why became a young-adult phenomenon, prompting schools to send warning letters to parents, and new seasons of big-time programs Orange Is the New Black and House of Cards. 13 Reasons Why's second season received a more muted response this year, and the next seasons of Orange Is the New Black and House of Cards will premier later.

Issuing guidance for its next quarterly report, Netflix forecast 68 cents per share in earnings in the third quarter on $3.988 billion in revenue. On average, Wall Street analysts who track Netflix expect 73 cents and $4.13 billion, respectively.

Overall, Netflix reported a profit of $384.4 million, or 85 cents a share, compared with $65.6 million, or 15 cents a share, a year earlier. Revenue rose 40 percent percent to $3.91 billion.

Analysts on average expected per-share profit of 79 cents -- matching Netflix's guidance -- and $3.934 billion in revenue.

First published July 16, 1:20 p.m. PT
Update, July 17 at 11:19 a.m.: Adds analysts' commentary, info on stock recovery.