Michelle Clancy ©RapidTVNews | 26-07-2011
Netflix beat revenue expectations in Q2 2011, but shares slipped 10% after the video streaming bigwig said it expects subscriber growth to put on the brakes in the third quarter, in the wake of recent rate hikes.
The over the top (OTT) video leader, who has seen its stock increase in value a full 850% since early 2009, expects to end the third quarter with subscriber growth basically flat quarter over quarter—a marked difference from its heretofore exponential growth rate. It should have about 25 million total U.S. subscribers, barely up from the 24.59 million it now has.
The second quarter however saw growth—Netflix added 1.8 million domestic subscribers (though that’s versus 3.8 million new subscribers last quarter). Netflix ended the quarter with $788.6 million in revenue, up 52%. Net income was up 55% to $68.2 million.
But the future looks rocky. As a result of growth constriction in Q3, Netflix also forecast earnings and revenue for the third quarter that would come up short of current analyst estimates. It’s projecting revenue of between $780 million to $805 million in the United States and global earnings of 72 cents a share, missing analyst expectations.
Netflix will raise rates starting 1 September, charging $15.98 for the combined streaming + DVD rental plan. That’s almost double the current $9.99. Subscribers were outraged and many took to the Internet to proclaim their intentions to cancel their subscriptions.
"We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we're working hard to further improve the quality and range of our streaming content,” Netflix said in a letter to shareholders.
The company expects that to pay off: the fourth quarter could be "our first billion dollar global revenue quarter, driven by strong U.S. performance," the company said. It also has big expansion plans for Latin America and Europe.