Finance

Netflix Hits 29.8 Million U.S. Subs, Beats Earnings Estimates

Boost from ‘Arrested Development’ Is Lower Than Some Investors Hoped 7/22/2013 12:47 PM Eastern

Netflix added more subscribers than the company generally expects for a second quarter, thanks to the over-the-top providers relaunch of Arrested Development, CEO Reed Hastings and chief financial officer Dave Wells wrote in a letter to shareholders.

Earnings jumped to 51 cents a share or 49 cents a share diluted, above analyst expectations of 40 cents, and revenue to $1.07 billion, in line with market expectations.

The company had been offering guidance of 36 cents a share for the quarter.

Operating income was notably higher than last year, hitting $57.1 million for the second quarter of 2013, up from $16.1 million a year earlier.

 “We generally expect net additions in Q2 to be lower than prior year Q2 due to increased net-add seasonality as we grow,” the executives wrote. “This Q2, however, was an exception, we believe due to the launch of Arrested Development.

They added later that “we’d be delighted to produce a fifth season of Arrested Development, if possible, given fan reaction.”

Nonetheless, originals remain a small part of Netflix’s overall content costs. “Of the approximately $3 billion in content library net book value we are amortizing, currently around 5% is originals,” Hastings and Wells wrote.

Netflix stock, however, fell by 15% in after-hours trading at 4:31 p.m. ET.

Some investors had been expecting Arrested Development to boost subscriber additions by 900,000, The Wall Street Journal reported.

But the company noted that U.S. streaming subs increased by 630,000 to 29.81 million in the second quarter.

That was up nearly 6 million from 23.94 million a year earlier. Paid U.S. subs totaled 28.62 million.

International streaming subs rose by 610,000, to 7.75 million.

Following the earnings release Netflix held a video conference call with top Netflix executives, where they took questions from investors that had been compiled by CNBC's media and entertainment reporter Julia Boorstin and Rich Greenfield, BTIG Research.

During the questions, which were generally more hard-hitting than those posed during the usual investor conference call, Hastings, Wells and chief content officer Ted  Sarandos responded to concerns about slowing growth, increased competition, its original content strategy, churn and viewing levels.

Despite repeated attempts to get executives to provide more details viewing figures or provide more detailed metrics on how they define a hit, Hastings and others stuck to the company line about not releasing ratings or viewing figures.

Hastings did note that all their originals had been successful in that they had been renewed. “The fact that we have renewed five for five tells you the economics are good,” he said.

In terms of the subscriber increases for the second quarter, Hastings dismissed concerns that the company’s growth was in danger of slowing. The stock had slid as much as 17% after the earnings release was posted at 4 ET and was trading down 3.6% from its close at 7:47 p.m. ET.

He stressed that the 630,000 additional subscriber reported in the second quarter was in the middle of their guidance and reiterated their belief that the market could support 60 million to 90 million subscribers before reaching saturation.

When asked if they expected to see faster sub growth in the third quarter following their Emmy nominations and the success of some of their originals, Serandos said the originals would have a “subtle but compounding” impact.

While refusing to get drawn into any specifics, Sarandos said “every one of these shows is drawing TV sized audiences.”

When asked about how many subscribers they lost as a result of not renewing the Viacom deal, which included access to Nickelodeon shows, Sarandos said “you saw the net ads. We grew.”

The company did not provide any details on the amount of original programing they planned to produce but did say it would expand the range of programing to include “feature documentaries and stand-up comedy specials,” the letter to investors noted.

Hastings also declined to provide figures on churn. “I don’t even look at churn numbers,” he said. “I look at net adds.”

 

 

September