Technology

Netflix Q2 net earnings fall 91% to $6 mn

MUMBAI: US internet subscription service for movies and TV shows, Netflix, has reported a fiscal second quarter net earnings of $6.1 million compared $68.2 million a year ago.


Revenue grew by 12 per cent to $889 million. Profit was $6 million compared to a loss of $5 million in the first quarter.


Netflix added 600,000 international subscribers in the second quarter, boosting its international subscription base to 3.6 million.


Gross margin narrowed to 27.6 per cent from 37.8 per cent. The company spent more on marketing as costs rose to $118.2 million from $94.9 million a year earlier. The company has warned that the Olympics will have a negative impact on business. It expects to add between 1 to 1.8 million new subscribers in this period.


The company letter to investors states, "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. In either case, we are generating impressive growth this year in our most developed market."


Talking about competition it said, "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."


Netflix plans to launch in a new market abroad in the fourth quarter which will cause a loss. "Our highly profitable US business, both streaming and DVD, is funding our international expansion. We believe this is the right long-term approach. In Q3, we expect to be profitable, while with the launch of a fourth international market in Q4, we will move to a consolidated loss."


The unsatisfactory subscriber growth and a muddied outlook for the rest of the year scared investors. The challenge for Netflix is that content owners are asking for more money while Netflix charges customers $8 per month.

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