Netflix 2Q profit shines, stock still loses luster

Jul 21, 2010 By MICHAEL LIEDTKE , AP Technology Writer
In this June 7, 2010 file photo, Netflix CEO Reed Hastings greets the audience at the Apple Worldwide Developers Conference, in San Francisco. Netflix Inc., releases second-quarter earnings Wednesday, July 21, 2010, after the market close. (AP Photo/Paul Sakuma, file)

(AP) -- Netflix Inc.'s second-quarter performance got panned by investors Wednesday for bringing in less revenue than expected, even though the movie subscription service added a million more customers to produce another earnings extravaganza.

While Netflix easily cleared the second-quarter earnings bar set by stock market analysts, its revenue was about $4 million below projections.

That narrow miss appeared to be the main reason Netflix's stock sank by more than 9 percent after the second-quarter numbers came out.

Nonetheless, the results underscore Netflix's growing popularity as more households embrace its combination of DVD mail deliveries and video delivered over high-speed Internet connections. The most popular subscription packages cost $9 to $17 per month.

The success has caused Netflix's market value to more than double so far this year, intensifying the pressure on the company's management to deliver results that outstrip Wall Street's expectations in virtually every key category.

Netflix ended June with 15 million subscribers, up from 14 million in March and 10.6 million a year ago. It marks the third straight quarter that Netflix has lured in at least 1 million more subscribers, and management expects to do it again in each of the next two quarters.

"The acceleration of our growth has been astounding, driven by the increasing appeal of streaming," Netflix CEO Reed Hastings said in statement.

In new guidance issued Wednesday, Netflix predicted it expects to have from 16.3 million to 16.7 million subscribers by the end of September. The more bullish forecast calls for as many as 18.5 million subscribers by the end of the year, up from a projection of 17.3 million made three months ago.

One possible worry for investors: subscribers have been gravitating to Netflix's less expensive subscription packages, a possible reason for the quarter's revenue shortfall. Customers, on average, paid Netflix $12.29 per month in the second quarter, a nearly 8 percent decline from the average of $13.29 a year ago.

That shift has been driven by subscribers' increasing use of Netflix's Internet streaming library as the company signs more licensing deals to include newer material from movie and TV studios. About 61 percent of Netflix subscribers streamed at least 15 minutes of video in the latest quarter compared with just 37 percent a year ago.

As more customers stream, they are picking subscription plans that offer fewer DVD rentals. The number of DVDs being sent through the mail is falling faster than management anticipated, helping Netflix to reduce its postage costs.

Hastings said Netflix could have made even more money in the second quarter had the company not elected to use some of those savings to spend on marketing efforts aimed at bringing in more subscribers.

The company earned $43.5 million, or 80 cents per share, in the second quarter, a 34 percent increase from $32.4 million, or 54 cents per share, a year ago.

The performance easily exceeded the average earnings estimate of 70 cents per share among analysts polled by Thomson Reuters.

Revenue rose 27 percent to $520 million, about $4 million below analyst projections. It was $408.5 million in the same period last year.

Netflix shares fell $11.17, or 9.3 percent, in extended trading. Earlier, it finished the regular session at $119.65, down 74 cents.

Explore further: Sony's quarterly loss balloons on mobile woes

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