Netflix turned in a solid quarter that bested Wall Street expectations. It reported $1.27 billion in revenue and earnings of 86 cents a share. That compares to earnings of 5 cents a share on revenue of $1.05 billion for this same period one year ago. Both revenue and profits, in other words, grew by a healthy margin. In terms of subscriber growth, the company added 2.25 million new US subscribers and 1.75 million new international customers. As usual, the company saw its DVD business shed customers, with 278,000 customers dropping out.
In his letter to shareholders, CEO Reed Hastings noted that despite its improved profits, Netflix plans to raise prices. "Our current view is to do a $1 or $2 increase, depending on the country, later this quarter for new members only. Existing members would stay at current pricing (e.g., $7.99 in the US) for a generous time period. These changes will enable us to acquire more content and deliver an even better streaming experience."
Investors are watching closely for the impact of the recent Comcast deal
Netflix's stock price is currently wavering around $344, well off the high of $454 it posted this March. But that is part of a larger trend among tech stocks, which have been punished in recent weeks, pushing down the NASDQ exchange. This is largely due to investors taking profits before being hit with any earnings-season surprises, and isn't indicative of a real slowdown in the Netflix fundamentals.
Investors will be watching very closely to see if they can gauge the financial impact of the deal Netflix struck this quarter with Comcast, in which it agreed to pay for direct interconnection. Speed and performance had both been degrading on Comcast for some time, but the trend sharply reversed after this deal was completed, and Netflix recorded a 65 percent speed increase on Comcast.
Netflix didn't alter its guidance for this quarter after announcing the Comcast deal, indicating that it wouldn't take a heavy financial hit. But since it has yet to strike a similar bargain with AT&T and Verizon, the other big ISPs in the US, the overall drag of these kinds of paid connection deals is a major question mark for Netflix's fiscal health in the future. While it wasn't explicit, the company did cite the need to improve streaming as one of its reasons for the planned price hike. Hastings also took time in his shareholder letter to again voice his opposition to the proposed Comcast-Time Warner Cable merger.
More Netflix customers are sticking with the service
Overall Netflix has now become the number one online video site, passing YouTube, which had long held the top spot. That's according to a new survey from RBC Capital Market, which polls consumers on a quarterly basis. The same study also found less churn among Netflix's customer base, with 69 percent now describing themselves as "not at all likely" to cancel their subscription. This is up from previous surveys, and seems to indicate that Netflix's original content, especially shows like House of Cards and Orange is the New Black, are helping to keep customers from leaving.