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Netflix stock plummets on more subscriber growth worries

July 24, 2012|By Ben Fritz
  • Investors are concerned that Netflix is not adding streaming subscribers quickly enough.
Investors are concerned that Netflix is not adding streaming subscribers…

Netflix stock fell 14% in after-hours trading due to renewed investor concerns about the subscription video company's subscriber growth in the U.S.

Despite the Los Gatos, Calif.-based firm's growing revenue and profit in its second-quarter results announced Tuesday, Wall Street seemed most concerned about a warning from Netflix that it may not reach a previously stated goal of adding 7 million new domestic streaming subscribers by the end of the year.

Netflix attracted 530,000 domestic streaming subscribers in the second quarter, bringing its total additions for the year to 2.27 million. In a letter to shareholders, Chief Executive Reed Hastings and Chief Financial Officer David Wells said their company will have to reach the high end of its guidance of 1 million to 1.8 million new streaming subscribers in the current quarter to reach 7 million by Dec. 31.

"Otherwise it would be challenging to achieve that goal by year end," they wrote.

Netflix's stock dropped 14% in April after its first-quarter results sparked investor concerns that it wouldn't meet the 7-million goal. The shares jumped early this month, however, after Hastings said Netflix usage hit a new high of more than 1 billion hours in June, raising Wall Street's hopes about the company's growth.

As of June 30, Netflix had 26.494 million subscribers in the U.S., of which approximately 17.25 million were streaming-only, 2.5 million DVD-only, and 6.7 million paid for both ways to watch movies and TV shows. Internationally, the company had 3.62 million customers in Canada, Latin America, Great Britain and Ireland.

Worldwide revenue grew 13% from the same period a year ago to $889 million, but net income plummeted 91% to $6 million. That was up, however, from a $5-million loss in the first quarter of this year.

Revenue was in line with analysts' estimates, while net income was slightly higher than expected.

Despite declines in Netflix's DVD business, which lost 850,000 subscribers during the quarter, that unit still provided $134 million in profit on $291 million in revenue. Streaming video was far less profitable, bringing in $83 million from $533 million in revenue. The company's international operations lost $89 million on $65 million in revenue.

Hastings and Wells noted in their letter that Canada was profitable, while Latin America, Great Britain and Ireland, which launched more recently, continued to drain money.

Netflix's leaders said the company will remain profitable during the current quarter, but will lose money in the fourth quarter as it invests in the launch of a new European market, which has not yet been publicly identified. Several people close to the company have suggested it is preparing to debut in Spain.

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