Netflix, Inc. (NFLX): Highlights Of The Report

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July 22, 2014 10:18am NASDAQ:QQQ

netflixJim Bach: Netflix, Inc. (NASDAQ:NFLX) grew sales by 25.3% in the second quarter over last year’s numbers, and posted a remarkable 141% increase in income, according to its most recent earnings release today (Monday). Netflix stock was up 1.75% to $451.95 on the news

of its earnings, and continued to climb in after-hours trading.

Netflix Stock

The earnings were in line with several analysts’ estimates, which forecasted a $1.15 earnings-per-share number on $1.3 billion in revenue, both of which NFLX roughly matched in the current quarter. It also beat growth estimates of about 133.5%. Total earnings for NFLX were just over $71 million, up from $29.5 million for the year before.

The online video and TV streaming service added about 1.7 million members to its domestic and international streaming businesses, with total members eclipsing the 50 million mark.

Revenue from domestic streaming services, that is, from U.S. customers, grew 24.9% over last year’s second-quarter figure to $838 million. Netflix also grew international streaming revenue 84.9% to $307 million. While in its international markets NFLX posted a $15 million loss because of steep marketing and distribution costs, it is up from its $66 million loss a year ago.

Its domestic DVD-by-mail business shed 1.2 million members and revenue was down 16.2% to $194.7 million from last year.

NFLX Q2 Highlights

In April, on the heels of first-quarter earnings releases, NFLX executives announced that they would be raising prices on their services by $1 a month, while grandfathering in the rate increase over two years for current subscribers. The rate increase is needed to help finance new content and expand Netflix’s current offering of TV shows and movies, said its executives.

In May, the online video-streaming service announced that it would expand into six new countries by late 2014, including France, Germany, Austria, Switzerland, Belgium, and Luxembourg. This is part of an international push that began when Netflix first expanded into Canada in 2010 and continued into Latin America, the UK, Ireland, Finland, Denmark, Sweden, and Norway. The international expansion, however, has yet to turn a profit.

There was also talk of Netflix eventually moving into the Australian and New Zealand market by 2015, reported in May. Any big expansions are likely to be delayed because as Chief Financial Officer (CFO) David Wells said in an earnings interview in April, the company wants “to demonstrate that before we launch another substantial expansion, that we’re pretty confident in our existing performance in the markets we have today.”

A public spat between NFLX and internet service providers Comcast Corp. (Nasdaq: CMCSA) and Verizon Communications Inc. (NYSE: VZ) over slow video streaming prompted the FCC to probe the companies to see who is at fault for the slowdown in June. NFLX argued that Comcast and Verizon should be able to handle the 36 million U.S. subscribers without a slowdown in NFLX streaming services, while the two telecom giants contend that NFLX should bear more of the cost for handling that heavy traffic, the Winnipeg Free Press reported in June.

VZ even went as far as threatening legal action over error messages on NFLX servers that explicitly blamed VZ for slow streaming services.

Despite these face-offs, NFLX in April agreed to pay VZ an undisclosed sum of money to help speed up streaming services, just a couple months after inking a similar deal with CMCSA.

NFLX worked to secure more subscribers with three separate deals with cable companies, which included RCN, Grande Communications, and Atlantic Broadband, to display a NFLX app in their set-top boxes, reported in April.

NFLX forecasts that its third-quarter profit will grow 71.9% to $55 million, and total members will begin to close in on 54 million. NFLX still expects a loss of $42 million on its international markets.

Money MorningWritten By Jim Bach From Money Morning

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