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Cable Technology Feature Article

July 23, 2013

Netflix Earnings Top $1B; Investors Nonplussed

By Tara Seals, TMCnet Contributor

Netflix continued its positive growth streak in the second quarter of 2013, and saw revenue that topped $1 billion for only the second time ever, totaling $1.07 billion. Also, earnings came in at 49 cents a share, beating expectations of 40 cents a share. Even so, investors gave a resounding “meh” about the results, driving Netflix shares down 4.8 percent as of Tuesday’s close.

The company also fell within its guidance on subscriber growth in the second quarter, reporting that it has gained 630,000 subscribers in the United States in the spring. And while the company’s international business continued to lose money, but the streaming giant still added 610,000 streaming subscribers globally.

In the U.S., the number of active members now stands at 29.8 million. Outside of the U.S., Netflix enjoys 7.75 million paying members. Combining the U.S. and international markets, Netflix has added 1.23 million members in the last quarter.

Image via Mashable

“We’re feeling quite good about the business,” CEO Reed Hastings said during the earnings call.

But investors disagreed. “The results were a little better than the analyst expectations but not good enough to impress the investors who had built so much optimism in the company's stock price in the last year and a half,” said analyst Jacob Steinberg, writing at Seeking Alpha.

He noted that many investors were hopeful that the company's exclusive show "Arrested Development" would have attracted many more members than it actually did, expecting closer to 880,000 additions (the high-end of the company's guidance at the end of the last quarter).

It’s unclear, Steinberg added, how Netflix expects to keep expanding so rapidly. “The company enjoys a huge market share in paid content on the Internet; however, the competition has been gearing up and pressuring Netflix in many ways,” he said. “Up until a few years ago, the company was almost unopposed and it could add members at a very rapid rate. After several companies such as Hulu (News - Alert) and Amazon joined the race in order to get a piece of the pie, the growth rate of Netflix has somewhat slowed down in the U.S. Apple is barely getting its feet wet and some cable companies are testing their own streaming, which may pressure Netflix further. Moreover, Google's YouTube (News - Alert) is testing a model where users pay a small fee to view some movies but the company's library mostly consists of older movies for the time being.”

It remains to be seen if Netflix can keep up with the growth, especially without a House of Cards or an Arrested Development in its back pocket for Q3. Even so, looking ahead, Netflix projects to add 700,000 to 1.5 million subscribers in the United States in the third quarter.

Edited by Rachel Ramsey

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