Netflix returned to profitability in the second quarter, with earnings per share that more than doubled expectations — 11 cents, compared to the 5 cents Wall Street expected, and $889 million in revenue was right in line with projections. But the stock dipped by a double digit percent drop after hours.
With the company saying that the third quarter “has begun strongly” and will be profitable again — what went wrong?
The much-watched metric of domestic streaming subscriber adds was 530,000 — the company had projected that it would add between 200,000 and 800,000. Though Netflix’s numbers came in above the midpoint, many analysts had expected the company to report at the very top of that range, especially considering the fact that CEO Reed Hastings had said that subscribers streamed a record 1 billion plus hours of video in June.
Netflix also warned that the Olympics are likely to have “a negative impact on Netflix viewing and sign-ups,” projecting net additions of 1 million to 1.8 million U.S. subscribers in the current quarter — less than Wall Street had expected.
If the company finishes the third quarter at the high end of that range, it will remain on track for the 7 million domestic net additions it projected last quarter. If it falls short of the high end of that goal this quarter, it won’t be able to reach prior projections for full-year growth.
In the letter to shareholders CEO Reed Hastings acknowledges “enormous challenges ahead,” and goes into competition from TV Everywhere options, like HBO Go. But he doesn’t paint a negative picture, saying that HuluPlus and Amazon Prime Instant Video have yet to “gain meaningful traction relative to our viewing hours.”
International growth also fell short of Wall Street projections. But the color commentary was positive, with Hastings noting that they’re successfully converting free trials into paying subscribers and implementing payment methods in Latin America.
-By CNBC's Julia Boorstin
@JBoorstin
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