Netflix reported second-quarter earnings on Monday that fell just shy of analyst estimates, and revenue that exceeded expectations as user growth exploded.
The entertainment technology company added 5.2 million total memberships, blowing away Wall Street’s estimates of 3.23 million during a historically weak quarter amid the return of marquee content like “Orange is the New Black.” International viewers now account for more than half of Netflix’s membership base.
Shares popped nearly 9 percent after hours, trading above the all-time intraday high of $166.87 a share.
Results vs. expectations
EPS: 15 cents per share vs. 16 cents per share, adjusted, expected by a Thomson Reuters consensus estimate
Revenue: $2.79 billion vs. $2.76 billion expected by a Thomson Reuters consensus estimate
User growth (net adds): 5.2 million (1.07 million domestic, 4.14 million international) vs. 3.23 million total streaming (631,000 domestic, 2.59 million international) expected by a FactSet estimate.
That’s compared to earnings of 9 cents per share on revenue of $2.11 billion in the year-ago period.
Q3 guidance, EPS: 32 cents vs. 23 cents per share expected by a Thomson Reuters consensus estimate
Q3 guidance, revenue: $2.97 billion vs. $2.87 billion expected by a Thomson Reuters consensus estimate
Q3 guidance, net adds: 4.4 million vs. 3.925 million total streaming expected by Street Account
User growth key amid mounting competition
Since Netflix’s last earnings report, new seasons of popular series “House of Cards” and “Orange is the New Black” hit the small screen. “13 Reasons Why” also garnered buzz after it was unveiled on the last day of the first quarter.
Netflix’s financial report comes on the heels of the 2017 Emmy nominations, which recognized Netflix series such as “Master of None,” “Unbreakable Kimmy Schmidt” and “Stranger Things” in the company’s 91 nominations.
But the nominations also highlighted the mounting competition in the digital streaming space, as Amazon ramps up content spending, and Apple dips its toe into original content with shows like “Planet of the Apps.” CEO Reed Hastings has told CNBC that Amazon is an “awfully scary” foe.
Last quarter, Netflix said it would spend over $1 billion in 2017 on marketing costs alone, projecting that the company would have negative free cash flow for “many years” as it invests in original content. On Monday, the company noted it expects $2 billion to $2.5 billion of negative free cash flow this year, a steeper shortfall than the $2 billion in negative free cash flow forecast last quarter.
There was no mention of net neutrality protections in the earnings results release, despite a vocal outcry from the technology sector as a whole this month. Hastings has said that net neutrality is no longer a battle that Netflix is especially vulnerable to.
Netflix has shuffled some top executives in recent months, adding chief product officer Greg Peters and feature film boss Scott Stuber. Netflix announced an ambitious plan for its feature film business on Monday, including the release of 40 features “that range from big budget popcorn films to grassroots independent cinema.”
The entertainment technology company also continued its international expansion, where it gets the bulk of its user growth, by adding support for more languages, and content such as “Las Chicas del Cable.”
Netflix acknowledged the increasing demands on viewers’ attention, noting that “creating a TV network is now as easy as creating an app, and investment is pouring into content production around the world.”
“It seems our growth just expands the market,” the company said in a statement. “The largely exclusive nature of each service’s content means that we are not direct substitutes for each other, but rather complements.”