Netflix on Monday reported that it gained 630,000 new subscribers in the United States in the spring, an improvement over last year during what is traditionally its weakest quarter of the year.
The results were well within the company’s projections, but investors – who had made Netflix the best-performing stock in Standard & Poor’s 500 stock index this year – were hoping for more, sending the stock down more than 7 percent in after-hours trading.
Looking ahead, Netflix projected that it would add 1.1 million subscribers in the United States in the third quarter, continuing a growth trajectory that has made it one of the most closely tracked companies in the media and technology industries.
In the second quarter, the company’s revenue topped $1 billion for only the second time ever, totaling $1.07 billion, in line with analysts’ expectations. It reported earnings of 49 cents a share, beating the consensus expectations of 40 cents a share. It returned to positive cash flow for the first time in a year, because of a one-time decline in payments to content providers and overall profit growth.
Outside the United States, Netflix added 610,000 streaming subscribers in markets like Britain and Brazil. The international business continued to operate at a loss, but it was lower than expected in the quarter.
“We are thrilled to be pleasing more members than ever,” Netflix’s chief executive, Reed Hastings, and its chief financial officer, David Wells, wrote in a quarterly letter to investors.
Hastings and Wells attributed some of the second-quarter subscriber gains in the United States to its late-May revival of “Arrested Development.”
“This show already had a strong brand and fan base, generating a small but noticeable bump in membership when we released it,” they wrote.
But they cautioned investors not to expect a similar bump from other new shows, like “Orange Is the New Black,” which came onto the service this month. “Other great shows don’t have that noticeable effect in their first season because they are less established,” they wrote.
Last week, Netflix gained widespread attention for its first-ever Primetime Emmy nominations, led by the Washington drama “House of Cards,” which is in the running for nine Emmys. Overall, however, original shows like “House of Cards” remain just a sliver of subscribers’ viewing; TV shows and films that have already had their premieres elsewhere “accounts for the bulk of viewing and leads to a lot of member enjoyment,” Hastings and Wells wrote.
They cited a revealing statistic on Monday: three-fourths of the hours streamed on Netflix are spurred by the algorithms that recommend specific shows and movies based on the subscriber’s past viewing.
In a hint of the company’s plans for more original programming, Hastings and Wells said they would be expanding to “include broadly appealing feature documentaries and stand-up comedy specials.”
Before the earnings announcement, Netflix stock closed down $2.62 at $261.96.
A year ago, it was hovering below $100.
“The stock’s meteoric rise to-date reflects management’s traction in repairing the brand, following the 2011 fiasco, but further momentum in the stock will have to be supported by better 2Q results and higher guidance,” Youssef Squali, an analyst for Cantor Fitzgerald, wrote in a note to investors before the earnings announcement.