Despite solid revenue growth, it was a rough day to be a Netflix shareholder. On later confirmed expectations of weakening profits for the rest of the year, the stock was punished and down 12% during regular trading hours. It continued to fall into after-hours sessions.
In the company’s earnings announcement released today, Netflix (NASDAQ: NFLX) reported Q2 revenue up 27% over the same period last year to $303.7m. Earnings on revenue were $26.6m (37c/share) or 31 cents a share after subtracting a $4.1m one-time payment from Blockbuster as part of the two company’s settlement of patent litigation.
The earnings number beat consensus analyst expectations (23c/share) but gross revenue was short. Analysts consensus estimates were for $307.7m. Customer retention numbers, or churn, which are a significant indicator of performance, were also weak. For the first time in 8 years, Netflix reported a decrease in total subscriber numbers from last quarter to this one. Overall, Netflix closed the June quarter with 6.74m subscribers, down 55k from April.
As the subscriber numbers foreshadow, the trouble and concern for Netflix lies as much now as in the future. Battles with Blockbuster are taking a toll on both companies with an increase in marketing costs and a pricing war looming (Blockbuster reports on Thursday). There also seems to be increasing concern that download-services (or even other unassociated entertainment offerings) vying for customer entertainment time and dollars will decrease the market opportunity for both companies.
In year ahead guidance, Netflix lowered expectations for the second quarter in a row. The company forecast earnings in the range of $42.4m to $52.2m, well below the April forecast of $55 to $60m for the year. Contributing to that reduction will be a decrease in income due to a $1 per month reduction in fees on its two most popular plans (effective Tuesday). Netflix also plans to open 10 more distribution centers around the country to improve the speed of deliveries and the overall customer experience. Additionally, there may be an increase in R&D investments and other expenses as Netflix spends to develop new technology for delivering movies via downloads over the Internet.
More detailed press coverage on Netflix’ finances can be found at: