No Stopping Netflix
Despite market fears of a slowdown, Netflix has continued to grow... and grow and grow. Its stock price has more than doubled in a year and its membership base has jumped by more than 25 million subscribers in the same time period.
If Netflix Inc. (Nasdaq: NFLX) is getting tired of all this success, however, the first-quarter earnings report does nothing to show it.
Netflix revenue in Q1 topped $3.7 billion, up more than 40% year over year, and more than 43% without DVD rentals factored in. Both revenue and earnings per share, which hit $0.64 for the quarter, were roughly in line with analyst forecasts, but the real success story is in Netflix's continuing ability to attract new subscribers. There, the company added 1.96 million subscribers in the US in Q1, and 5.46 million subs internationally, far outpacing expectations.
"We've outperformed the business in a way we didn't predict," said Netflix CFO David Wells on the Q1 earnings call. "So if you look at our outperformance of the last three quarters, the business has grown faster than we expected."
Not that Netflix wants anyone to think the company is growing complacent.
"We're a fraction of the hours of viewing of YouTube," noted CEO Reed Hastings. "We're a fraction of the hours of viewing of linear TV."
And to that point, Hastings suggested Netflix still has room to grow.
As Netflix gets bigger, the strategy for the company's growth has continued to evolve. Netflix is making more use of partnerships today, particularly in the pay-TV operator space. The company announced a deal with Sky (NYSE, London: SKY) back in March to bundle Netflix service with Sky TV, and with Comcast Corp. (Nasdaq: CMCSA, CMCSK) just last week to offer Netflix as part of X1 video packages. (See Comcast, Netflix Cozy Up in New Deal.)
Netflix stated in its quarterly letter to investors that bundling helps with customer retention, asserting that, "We believe that the lower churn in these bundles offsets the lower Netflix ASP (average sales price). We remain primarily a direct-to-consumer business, but we see our bundling initiative as an attractive supplemental channel."
One final note -- Hastings was asked at the end of the company's investor call about the impact of recent technology sector privacy scandals.
"I'm very glad that we built the business not to be ad-supported but to be subscription," Hastings responded. "We're very different from the ad-supported businesses. And we've always been very big on protecting all of our members' viewing. We don't sell advertising. So I think we're substantially inoculated from the other issues that are happening in the industry."
— Mari Silbey, Senior Editor, Light Reading