Netflix Earnings Soar, But Disappoints on New Subscribers

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Jesse Grant/Getty Images for NetflixThe cast of "Arrested Development"

SAN FRANCISCO -- Netflix's second-quarter earnings more than quadrupled as the revival of the comedy series "Arrested Development" attracted more subscribers.

Despite the financial gains, the report released Monday flopped on Wall Street because the return of new "Arrested Development" episodes after a seven-year absence didn't add as many U.S. subscribers as many investors had been hoping. Netflix's high-flying stock sank $20.96, or 8 percent, to $241 in extended trading after the numbers came out.

Netflix picked up about 630,000 U.S. subscribers during the three months ending in June. That performance was slightly above the mid-range target set by Netflix Inc.'s management in April. The Los Gatos, Calif., company had predicted it might end the period with as many as 880,000 more subscribers -- a goal that many investors evidently were hoping would be reached.

Expectations had been raised by the Memorial Day weekend release of 15 new "Arrested Development" episodes. The comedy starring Jason Bateman and Michael Cera had built a cult following before its cancellation by the Fox network in 2006 after three seasons.

In a letter to shareholders, Netflix CEO Reed Hastings credited "Arrested Development" for providing a "small but noticeable bump" in subscribers. He praised the company for being able to add more subscribers during the first half of this year than it did last year, despite intensifying competition from other Internet video services run by Inc. (AMZN) and Hulu.

Netflix has added 2.7 million subscribers so far this year, up from 2.5 million at the same time last year.

Hastings was scheduled to elaborate on his views about the past quarter and the rest of the year beginning at 6 p.m. EDT in an unusual talk-show format that will be streamed live over the Internet.

The second-quarter gains leave Netflix with 29.8 million U.S. subscribers to an $8 monthly service that streams video to Internet-connected devices.

Netflix also added 605,000 international subscribers in the second quarter to boost its total customers outside the U.S to 7.75 million.

The company's DVD-by-mail rental service continued a gradual demise as more people embrace the convenience of Internet streaming instead of waiting for discs to be delivered. Netflix lost another 475,000 DVD subscribers in the second quarter, leaving the company with 7.5 million on that side of its service. Netflix has been pushing people toward streaming anyhow because the company believes DVDs are destined for obsolescence and doesn't want to spend a lot on the business any longer.

Netflix earned $29.5 million, or 49 cents a share, in the quarter, up from $6.2 million, or 11 cents a share, a year earlier.

Analysts surveyed by FactSet had forecast earnings of 40 cents a share.

Netflix's revenue climbed 20 percent from last year to $1.07 billion, mirroring analyst projections.

In the current quarter ending in September, Netflix predicted it will add 690,000 to 1.49 million U.S. subscribers.

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Without paying for the additional disc delivery, there are few new movies available on Netflix for streaming. I am so disappointed in the quality of the new movies available to stream. I will be cancelling my streaming service and going strictly to disc again so I can at least see the latest movies without going to On Demand service with my cable company. Netflix streaming, in my opinion, is really a disappointing service unless you like 1970's movies or old tv shows.

July 23 2013 at 10:24 AM Report abuse rate up rate down Reply