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Higher-than-forecast subscriber growth in both domestic and international markets highlighted a stellar performance for the streaming giant, even in a historically soft second quarter.
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When video-streaming pioneer Netflix, Inc. (NFLX +0.00%) reported earnings, it blew past all its internal forecasts and analyst estimates alike, as the company produced record-setting growth in what is historically a seasonally slow quarter. By nearly any objective measure, the company absolutely killed it this quarter, and investors seemed to cheer, with the stock up 10% in after-hours trading.
Netflix had previously encouraged investors to abandon the long-held practice of focusing on subscriber growth and pay more attention to revenue growth and global operating margins. In the end, it was irrelevant, because no matter what metric investors used, Netflix scored a win. Here's a look at the most important metrics that show just how great a quarter it really was.
13 Reasons Why was a surprise hit of the quarter for Netflix. Image source: Netflix.
$2.785 billion: The company's quarterly revenue of $2.785 billion increased 32.3% year over year and came in higher than Netflix's own forecast of $2.755 billion, while also exceeding the $2.76 billion average expectation of the analysts Yahoo! Finance tracks. Netflix explained in its quarterly shareholder letter that it "underestimated the popularity of our strong slate of content" and that subscribers joined in higher numbers across all the company's major markets. The company released a host of new shows during the quarter, including fan favorites House of Cards, Orange Is the New Black, and Master of None, as well as new shows that created a huge buzz for the company, including 13 Reasons Why, which was released on the final day of the last quarter.
$0.15: Netflix reported earnings per share of $0.15, a 67% increase over the prior-year quarter, consistent with its own guidance and in line with the $0.16 analyst expectation. As the international market continues to grow, expect its profitability to ramp up.
5.2 million: Netflix added a record 5.2 million members in its historically slow second quarter, a full 2 million stronger than Netflix's forecast of 3.2 million. This acceleration was led by over 4 million new international subscribers and more than 1 million domestic additions. For the first six months of 2017, subscriber additions are up 21% over the prior-year period.
50.1%: The percentage of Netflix subscribers who hail from international markets. The company has repeatedly stated that it expected the majority of its members to soon be outside the United States. This is a major, if somewhat symbolic milestone, as Netflix continues to focus on building out its library of international content.
7.1%: Netflix reported an operating-profit margin of 7.1% for the first six months of the year, and it's on track to achieve the 7% goal it set for the full year. In fact, if exchange rates hold, the company expects to see a positive international contribution profit for the full year of 2017, which the company defines as revenue less cost of revenue and marketing expenses. This is big news, as earlier this year, the company merely expected its contribution loss "to improve substantially year on year." Moving to a contribution profit is a step closer to overall international profitability.
91: The number of Emmy nominations Netflix's shows received, nearly double the 54 nods from the previous year. That puts the company within striking distance of the 110 nominations HBO received -- which seems appropriate since Netflix's chief content officer once famously stated that "The goal is to become HBO faster than HBO can become us." Netflix was recognized across a broad swath of its original programs -- 27 in all. Five Netflix original series were nominated for best series, including Stranger Things, The Crown, House of Cards, Master of None, and Unbreakable Kimmy Schmidt. The company plans to spend $6 billion on content this year and release 1,000 hours of original programming, as it continues to differentiate itself from the competition.
Netflix continues to execute. Image source: Netflix.
It should be noted that some investors will continue to be concerned about Netflix's negative free cash flow. The company addressed that concern in its shareholder letter, writing, "With our content strategy paying off in strong member, revenue, and profit growth, we think it's wise to continue to invest ... and, as we have said before, we expect to be [free cash flow] negative for many years."
Those concerns aside, these results emphasize that Netflix has been making all the right moves -- from its international expansion to self-producing its original content -- and investors continue to make a killing.