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October 24, 2014

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Netflix tops 50M subscribers as 2Q earnings soar

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Steve Marcus

Skott Ahn, president and chief technology officer of LG Electronics Inc., talks about LG’s partnership with Netflix during the 2014 International Consumer Electronics Show (CES) in Las Vegas, Monday Jan. 6, 2014. LG announced that its 2014 line of Ultra HD TVs will support content streaming in 4K from Netflix.

SAN FRANCISCO — Netflix's second-quarter earnings more than doubled as new episodes from one of its hit series helped the Internet video service surpass 50 million worldwide subscribers for the first time.

The gains announced Monday include an additional 570,000 U.S. subscribers, slightly more than Netflix's management predicted. The quarter is typically the company's slowest of the year, as people spend more time outdoors instead of watching video.

Investors applauded the second-quarter results as Netflix's stock rose $4.65 to $456.60 in extended trading. The shares have surged by 23 percent this year while the Standard & Poor's 500 index has increased 7 percent.

The second quarter featured one of Netflix's marquee attractions, "Orange Is The New Black," which returned for its second season in early June. As with Netflix's other original series, all 13 episodes of "Orange Is The New Black," were released simultaneously so subscribers could watch the story unfold on their own schedules.

"Orange Is the New Black," set in a women's prison, received 12 of the 31 Emmy Award nominations bestowed upon Netflix programming for this year's awards. Netflix's Emmy nominations eclipsed the 24 garnered by longtime pay-TV channel Showtime, which collected 24, but lagged far behind HBO's pace-setting 99 nominations.

The Internet video service's vast library also includes thousands of previously released movies and shows already shown on traditional TV networks.

Netflix Inc. ended June with 36.2 million subscribers in the U.S. and another 13.8 million customers in roughly 40 other countries. The Los Gatos, California company picked up 1.1 million subscribers outside the U.S. in the second quarter, a figure that also topped management's projections.

The company expects to add another 3.7 million worldwide subscribers in the current quarter ending in September, including 1.3 million U.S. customers. It also plans to start selling its Internet video service in six more European countries in September, including Germany and France.

As part of its effort to continue attracting subscribers, Netflix disclosed plans to start selling gift cards this fall in brick-and-mortar stores in the U.S., Canada, Mexico, and Germany. The company so far has only sold gift certificates online.

The second-quarter performance will likely alleviate any concerns that a price increase imposed in early May would undercut Netflix's growth. Netflix raised its rates by $1 to $9 per month for Internet video streaming in the U.S., but the company eased the blow by allowing existing subscribers to continue paying the old price for at least two years.

As Netflix's video-streaming service steadily grows, the DVD-by-mail rental business that once was the company's foundation is slowly crumbling. The DVD rental service shed another 391,000 subscribers in the second quarter to end June with fewer than 6.3 million customers. That's a decline of 55 percent in less than three years.

Netflix earned $71 million, or $1.15 per share, during the April-June period. That compared to income of $29.5 million, or 49 cents per share, at the same time last year. This year's earnings per share were a penny above the average estimate among analysts surveyed by FactSet.

Revenue climbed 25 percent from last year to $1.3 billion, matching analyst projections.

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