If the last two years for Netflix were about driving subscriber growth through big splashy original programming, the next year will be about international expansion.
As part of its second-quarter earnings report Monday, Netflix said that it surpassed 50 million subscribers for the first time in its history, adding just under 1.7 million total subscribers during the three months ended June 30. The company surpassed its projection of adding 1.46 million streaming subscribers in the quarter.
More than 1 million of Netflix’s new subscribers came from international markets, a 78% increase from the second quarter of last year. The company now boasts 13.8 million overseas subscribers and expects to add another 2.36 million in the third quarter. Netflix plans to spend heavily to grow its international subscriber base, expecting to post a loss of $42 million in the third quarter as it expands into Germany, France, and other markets.
But, executives and analysts believe spending now will pay dividends in the long run. After the year’s expansion, for instance, Netflix will still only be available in about one-third of international homes with broadband access, leaving it with plenty of room to grow. Indeed, BTIG analyst Rich Greenfield projected in a report Monday that Netflix could end 2015 with 27.4 million international subscribers, almost double its current figure.
Netflix reported total revenue of $1.34 billion for the second quarter, in line with analysts’ estimates. Net income of $71 million and earnings per share of $1.15 were also in line with analysts’s projections. More than 30% of Netflix’s total streaming revenue comes internationally and the company eventually expects it to eventually surpass what it generates domestically.
Netflix shares, which are up roughly 65% in the last year, rose a further 1.15%, or $7.78, to close trading Monday at $451.95. The stock gained more on the strong earnings report in after hours trading, reaching $453.56 per share, still below its 2014 high of $454.98 reached on March 4, however.
Based on that price, Netflix is valued at roughly $27 billion. By comparison, 21st Century Fox’s bid to acquire Time Warner values HBO at just $20 billion, which suggests that investors are either wildly overvaluing Netflix or HBO is undervalued as part of Time Warner.
The second season of Orange Is the New Black premiered during the quarter, and Netflix said that during its first month in release — which would have been June — it became the most watched series in the company’s history. Of course, and as per usual, Netflix did not release any ratings data to support that claim.
Orange Is the New Black, plus the second season of House of Cards, helped Netflix garner 31 Emmy nominations this year. Last year Netflix received a total of 14 Emmy nominations and walked away with three statues for House of Cards, a first for an online-only production.
But with those marquee shows on break, the rest of Netflix’s original programming slate this year appears thin on shows that can either drive subscriptions or prestige for the company. Remaining shows on tap to debut this year include Marco Polo, Bojack Horseman, and a new season of Lilyhammer, among others.
During the quarter the company did announce a deal to create a talk show with Chelsea Handler, a move that perplexed analysts since most Netflix original programming has a long shelf life and is not considered time-sensitive. For its part, however, Netflix claims viewers are watching talk shows on delay the same way they do other programming.
“As with scripted programming, but unlike news or sports, fewer people are watching talk shows live and are instead watching stacked episodes on DVR or online in the days and weeks following initial airing,” Netflix executives said in its second quarter letter to shareholders. “Our intent is to produce a show with Handler and her team that reflects this shift to on-demand enjoyment and that will appeal to a global audience.”
Netflix’s results were the first since the company announced a price increase for new subscribers last quarter, a move it said would help it better compete to acquire content but investors feared would impact subscriber and revenue growth. The company said that the price increase had “minimal impact on membership growth,.”
In June, Netflix investors voted down a proposal led by New York City Comptroller Scott M. Stringer and California public pension fund Calpers to separate the chairman and chief executive roles both held by Reed Hastings. Though the proposal has the support of both proxy advisory firms Institutional Shareholder Services and Glass, Lewis, a majority of Netflix shareholders voted against it, a sign that they have renewed faith in Hastings’s vision and operating of the company after a flawless 2013.
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