Netflix: Subscribers Soar and Earnings Beat, Forecast Disappoints


Netflix continues to add subscribers at a breakneck speed — it's now the largest subscription entertainment business in the US, beating Comcast. (*Note: Comcast is the parent company of CNBC and NBC Universal)

The company added 3.3 million subscribers in the US and another 300,000 in Canada, putting its total at 23.6 million. The company's growth continues to accelerate — it added nearly double the number of new subscribers than a year ago.

Thanks to these new subscribers the video streaming and DVD rental company nearly doubled its earnings — reporting $1.11 per share, up from just 59 cents a year ago. And global revenue came in at $719 million, up from just $494 million in last year's Q1.

So why did the stock fall after hours?

The company's outlook disappointed expectations — Netflix says it sees Q2 earnings coming in between 93 cents and $1.15 per share, while Wall Street analysts projected $1.19 in EPS in the second quarter. The company's revenue forecasts for the upcoming quarter exceed expectations — it projected a $778 million to $798 million range, ahead of the consensus forecast of $763 million.

Netflix struck a number of huge deals in the first quarter — with CBS, Fox, and Lionsgate. The company doesn't break out specific content costs, but reports its gross and net margins. The company says its target operating margin is 14 percent, but this quarter thanks to stronger-than expected growth, it reported a 16 percent domestic operating margin. This despite the fact that the company spent record amounts marketing the service.

Coming up on the earnings call we can expect plenty of questions about those content costs — can Netflix continue to justify the deals and what other deals does it have in the works? We can also expect analysts to drill down to subscriber growth numbers — can the company keep up this pace?

Questions? Comments?