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Paul Sakuma/Netflix
Kimmy Schmidt may be unbreakable, but Netflix’s membership milestones surely aren’t.
Netflix touted a record number of people signing up for its streaming-video service in a report Wednesday on its first-quarter financial performance. And investors took heart, pushing shares to all-time-high levels in after-hour trading — and ignoring the toll that foreign exchange took on the company’s profit during the first three months of the year.
US subscribers broke through 40 million for the first time. Its members abroad broke through 20 million, as the company focuses on international expansion as a key strategy. Netflix credited both its international push and its packed pipeline of original TV and movies for luring subscribers in — and keeping them.
Netflix’s ambitions overseas have created a new front for growth, while it fends off greater competition at home than ever before. A parade of traditional television rivals like HBO, CBS and Dish have launched direct-to-consumer streaming services in the US, bringing the fight for video viewer’s attention onto Netflix’s own turf. (Disclosure: CBS is the parent company of CNET.)
Meanwhile, Netflix’s US subscriber base has grown so large it is challenging for the company to keep it growing rapidly. To amp up the pace, the company is expanding abroad and dedicating attention to splashy original programming.
Shares were up 13 percent to $537.24 after hours on Wednesday, which would represent an all-time high. The stock had risen 37 percent in the last year through the close.
Television’s future
Netflix sees little threat from HBO creating a service similar to its own, saying the two “are not substitutes for one another given differing content” in a letter to shareholders from Chief Executive Reed Hastings and Chief Financial Officer David Wells. “We think both will continue to be successful in the marketplace, as illustrated by the fact that HBO has continued to grow globally and domestically as we have rapidly grown over the past five years.”
Hastings argued during a discussion of the results later Wednesday that the rash of new rivals online is actually good for Netflix.
“The attention of the new launches of the competitors is only creating a bigger ecosystem, drawing more and more people into thinking ‘Hey, I’ve got to check that out and try this Internet TV thing,'” he said.
But Hastings unleashed his competitive zeal on traditional television, which is delivered in a linear flow rather than Netflix’s on-demand model. “Linear TV has been an amazing 50-year run,” he said. “Internet TV is the way that people will consume video in the future.”
Going international and original
In its results, the international subscriber base expanded by 2.6 million members to 20.88 million, better than the 2.25 million additions it predicted. Netflix added 2.28 million new US streaming customers in the first quarter, for a total of 41.4 million, beating its January guidance. Analysts’ estimates stayed close to the company’s projections.
Looking ahead, Netflix expects to add 600,000 streaming members in the US and 1.9 million internationally in the second quarter. Both projections were better than analysts’ consensus estimates.
In the latest period, Netflix moved into two new countries, Australia and New Zealand, after it expanded to six mainland European countries last year in it biggest single expansion abroad ever. Though Netflix seldom provides specifics about its performance region by region, Hastings noted that the US — despite being the service’s biggest market by far — is not its biggest in terms of average hours of video watched per subscriber.
In other words, members in new markets aren’t messing around when it comes to binge watching.
Meanwhile, several high-profile Netflix original series premiered in the first three months of the year: the third season of “House of Cards,” its marquee show; “Unbreakable Kimmy Schmidt,” a comedy from many of the same creators as “30 Rock;” and “Bloodline,” a drama from the makers of legal thriller “Damages.”
In the current quarter, Netflix has several big originals in the pipeline as well, including the third season of “Orange Is the New Black” and “Sense8,” a new program made by the Wachowski brothers of “The Matrix” fame.
Though the aggressive expansion plans are reaping new subscriber rewards, they are costly and introduce tricky foreign-exchange elements that can appear to damp profit. Netflix predicted 26 cents per share in earnings in the current quarter. On average, Wall Street analysts who track Netflix expected 90 cents.
More to come
Netflix said it would update its service’s look on TVs sometime in the second half of the year to have more video playing. It added that next year it will move to what’s known as HTTPS to better protect members’ privacy. HTTPS is a kind of Internet protocol used by sites like banks and email clients for its enhanced security.
Overall, Netflix reported a profit of $23.7 million, or 38 cents a share, compared with $53.1 million, or 86 cents a share, a year earlier. Though analysts on average expected per-share profit of 69 cents, above Netflix’s guidance for 60 cents, the company said Wednesday that its per-share profit would have been 77 cents excluding currency losses caused by the strong dollar.
Revenue increased 24 percent to $1.57 billion, matching analysts expectations.
UPDATED at 2:58 pm PT: With comments and details from executives’ discussion of results.
