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Netflix reports stronger-than-expected Q2 profit as subscribers vault to 65.6 million

Last updated: 11:54 16 Jul 2015 EDT, First published: 09:54 16 Jul 2015 EDT

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Netflix has been on a globe-trotting binge to expand its reach as new members subside in the U.S. It has launched in Australia, New Zealand, France and Cuba, among other territories. It next sets its sights on Japan, Spain and Italy this fall. It expects to complete its 200-country expansion by 2016.

Netflix (NASDAQ:NFLX), the top stock in the S&P 500 this year, reported stronger-than-expected earnings in the second quarter as its subscribers leaped to 65.6 million, helped by hit original programming such as “orange Is the New Black” and “Daredevil”. Shares surged in morning trading.

The strongest growth was in international markets, where subscribers jumped 2.37 million to 23.3 million, the Los Gatos, California-based company said late yesterday on its website. That beat the 1.94 million average of five analysts’ estimates, according to Bloomberg. Domestic subscribers grew by 900,000 to a total of 42.3 million, beating estimates of 636,000. 

Net income fell 63 percent to $26.3 million, or $0.06 per share, from $71 million, or $0.16 per share, a year earlier.

Analysts were projecting a post-split profit of $0.04, the average of 32 estimates compiled by Capital IQ.

The earnings for the latest quarter were two cents per share above the estimates of analysts surveyed by FactSet.

The company reported a loss of $92 million from international streaming, less than the $101 million projected in April.

Revenue, meanwhile, rose to $1.64 billion from $1.34 billion, compared with analysts’ projections of $1.65 billion.

And the company's cash on hand fell to $229 million from $163 million in the first quarter because of big investments in original programming with new shows including “Marvel's Daredevil” and the Jane Fonda-Lily Tomlin comedy “Grace and Frankie.”

Netflix has been on a globe-trotting binge to expand its reach as new members subside in the U.S. It has launched in Australia, New Zealand, France and Cuba, among other territories. It next sets its sights on Japan, Spain and Italy this fall. It expects to complete its 200-country expansion by 2016.

Several analysts have projected Netflix will surpass 100 million subscribers by 2020. Netflix reached 5 million subscribers in Latin America last year. Digital TV Research Ltd. projects it will top 7 million there and 5 million in the U.K. by year end.

For the third quarter, Netflix projects it will add 3.55 million new subscribers, for a total of 69.1 million. The company forecasts net income of $31 million, or $0.07 per share.

Analysts forecast 3.34 million new customers worldwide. They estimate profit of 5 cents a share for the third quarter on sales of $1.73 billion.

The company is expanding its production and acquisition of original programming to sustain that growth. In October, Netflix will release its first original feature film, “Beasts of No Nation,” for streaming customers and in theaters. Adam Sandler’s “The Ridiculous Six” comes out in December.

Netflix has acquired more Spanish-language programming for its U.S. viewers, and will produce and acquire localized videos for many of its new territories.

At least 10 brokerages raised their price target on the stock. Pivotal Research was the most bullish with a price target of $155 - about 58 percent higher than the stock's yesterday’s close. The median price target on the stock is $103.57.

Shares were up 10.4 percent to $108.30 at 9:43 a.m. in New York. The stock has more than doubled this year.


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