Peter Kafka

Recent Posts by Peter Kafka

Netflix Hits Its Q2 Numbers, and Wall Street Is Not Happy

A first look at the Netflix Q2 numbers: Earnings of 11 cents a share on revenue of $889 million. The street was expecting five cents per share and $889 million. (Apologies: An earlier version of this report had an incorrect earnings per share number).

At least as important, though, are the video service’s subscriber numbers. Here investors were looking for 24.3 million domestic streaming subscribers, 9.1 million DVD subs, and 3.7 million subscribers from Canada, Latin America and the U.K., and Netflix didn’t quite get there: 23.9 million domestic, 9.2 million DVD and 3.6 million international.

Wall Street is unhappy with something here: NFLX has plummeted 14 percent since the release hit the wires.

As always, here’s a cheat sheet from Citi’s Mark Mahaney, so you can play along at home (click to enlarge). Pay attention to guidance from Netflix on boths subs and financials, as this has been a flashpoint in the past.

Here’s a possible warning flag for investors on Q3: Netflix is saying that the summer Olympics could impact growth. That’s the first time I believe I’ve heard them warn about that.

Here’s CEO Reed Hastings in his investor letter:

For Q3 quarter-to-date, our domestic net additions are very nearly the same as Q3 2010 over the comparable partial period. In that quarter two years ago, we finished with 1.8 million domestic net additions. However, in the middle of that quarter, we launched Netflix on the iPhone to great reception, and we don’t have an equivalent launch this quarter. Moreover, this quarter the Olympics are likely to have a negative impact on Netflix viewing and sign-ups. So, our Q3 guidance is 1 million to 1.8 million domestic net adds. If we finish Q3 in the high end of that range, we would remain on track for 7 million domestic net additions for the year; otherwise it would be challenging to achieve that goal by year end.

That said, the guidance that Netflix is offering for Q3 would seem to be what investors were looking for: Up to 25.7 million streaming subs, 4.4 million international and 8.7 million DVD subscribers.

Another heads up: Netflix says it will launch a new international market in Q4, which will put the company in the red that quarter.

What about competition from the likes of Amazon, and, soon, Verizon? Still not a problem, Hastings says:

We have yet to see HuluPlus or Amazon Prime Instant Video gain meaningful traction relative to our viewing hours, but as we continue to build a domestic profit stream they are likely to increase their efforts to gain viewing share. Redbox Instant by Verizon, once they launch, will face a big challenge to break into the top 3 of subscription streaming services.

And here’s a bouquet for HBO. Wonder if it will sway Jeff Bewkes: “While we compete for content and viewing time with HBO, it is also possible we will find opportunities to work together – just as we do with other networks.”

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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus