This is the first full quarter after Netflix announced its massive global expansion to 130 new countries. It added a record 6.74 million new subscribers, and a whopping 42 percent of its customer base is now outside the United States. Normally that kind of good news would send the share price up, but it took a nose dive instead. Investors were very unhappy with the company's guidance for next quarter, with Netflix predicting it will add just 2 million new customers overseas, compared to the 3.45 million analysts had been expecting. That number sent the stock down around 12 percent in after-hours trading.
The company had already been on a tear overseas, adding a record 5.59 million new subscribers last quarter, with four-fifths of those gains coming outside the US. Netflix has warned several times that it believes the market in the US is becoming saturated, which is why it has moved so aggressively to open in new territories. Today it reported 2.23 million new US subscribers, much better than the 1.85 million that analysts had projected. But next quarter it expects to add just 500,000 new customers in the US. The chart below shows the dramatic dropoff in Netflix subscriber growth if the projections for next quarter hold true.
Netflix attributes the slump in international subscriber growth to the fact that it had some big wins last year it can't replicate. "Our international forecast for fewer net adds than prior year is due to a tough comparison against the Australia/New Zealand launch," the company wrote in its quarterly letter to investors. "The ANZ growth spike in Q2 last year resulted in international Q2 net adds more than doubling year over year (from 1.12 million to 2.37 million). While ANZ is growing steadily this Q2, it is less than the launch spike last year."
On the financial side, Netflix reported $1.96 billion in revenue compared with $1.57 billion for this quarter laster year. This quarter it recorded $49 million in operating income, down from $92 million for the same period last year, a change it attributed to the cost of its international expansion.