Netflix breaks streaming subs 65MN barrier but Q2 profits dip

DetailsMichelle Clancy | 16 July 2015

Netflix has delighted investors with its second-quarter earnings, adding 1.026 million subscribers domestically and 2.37 million internationally.

It was a surprise: the streaming giant had forecast 600,000 net adds domestically and 1.9 million international additions.

The 3.28 million new streaming subscribers contributed to revenue that was in line with estimates at $1.65 billion, but profits dropped sharply, by 63%, coming in at just $26.3 million, or six cents a share. That's down from $71 million, or 16 cents a share, a year earlier.

Ongoing international expansion (Q2 saw launches in Australia and New Zealand) and the rising cost of content acquisition, along with unfavourable exchange rates, were to blame, the SVOD leader said, but CEO Reed Hastings struck a positive tone in a letter to shareholders.

"We continue to target a 40% US contribution margin by 2020, even though we are running ahead of plan given stronger than expected top line performance and lower content and other streaming costs," he said. "We remain committed to running around break-even globally on a net income basis through 2016, and to then deliver material global profits in 2017 and beyond."

Netflix expects to be in 200 countries by the end of next year, with Japan, Portugal, Italy and Spain slated to launch in autumn. China and India will follow.

The company's 7-to-1 stock split also went into effect on Wednesday, and shares surged 11% to $109 in late trading. Then, post-earnings, shares surged again, more than 10%, in after-hours trading.

The company's Q3 forecast calls for another 1.15 million domestic subscriber additions, and 2.4 million more international additions.