Netflix Posts $5 Million Quarterly Loss
UPDATED: The company adds 1.7 million U.S. streaming users during the first quarter but loses 1.1 million DVD subscribers.
Netflix fell to a loss in its first quarter even while adding 3 million streaming members to its ranks, bringing its total to 26 million worldwide.
Revenue grew to $870 million from $719 million in the year-ago quarter, and the company reported Monday a net loss of $5 million, reversing net income of $60 million a year ago.
The loss marks the first quarter in seven years where Netflix was unable to turn a profit.
Netflix's core U.S. business -- where some subscribers stream, some get DVDs and the majority do both -- ended the quarter with 26.5 million subscribers, having added 1.7 million streamers during the quarter while losing 1.1 million DVD subs.
Although the results mostly exceeded the expectations of analysts, Netflix shares sunk 16 percent after the closing bell after having lost 4 percent during the regular session to $101.84.
Growth in Netflix''s international streaming business was dramatic, surging to 2.4 million paid subs from just 670,000 a year ago.
In a letter to shareholders, CEO Reed Hastings and CFO David Wells boasted that Netflix is in part responsible for contiued popularity of Mad Men and other shows where entire back seasons have been made available for streaming.
"We saw this demonstrated recently with the premiere of Season 5 of Mad Men on AMC achieving its biggest audience yet (20 percent higher than last season's premiere), subsequent to the first four seasons becoming available on Netflix last summer," the two executives wrote. "Even now, the most watched episode of Mad Men on any given day on Netflix is the first episode of the first season. This means we are still growing the fan base for this show nearly six years after it first premiered on television."
The two execs also wrote that the success of original programming, in particular Lilyhammer, means the initiative is no longer a "strategic experiment" but a "strategic expansion."
"We know we have a lot to learn in the originals area. In terms of early results, we exceeded our targets on Lilyhammer in terms of PR, viewing and critical acclaim," they wrote. "The show has driven millions of hours viewed, is hightly rated (four out of five stars on average) and generated hundreds of millions of consumer impressions with a comparatively small PR marketing spend."
Others originals coming to Netflix are Hemlock Grove, House of Cards and new seasons of Arrested Development.
Hastings and Wells said Netflix's spend on original programming remains under 5 percent of its total spend to license content, but that they are contemplating raising that threshold.
The executives also said that allowing a Starz deal to expire in February hasn't hurt its business, and they noted that new deals with other providers have brought, or will bring soon, to Netflix streaming subscribers such movie titles as Rango, The Lincoln Lawyer, Justin Bieber: Never Say Never, The Artist, Undefeated, Drive, Thor and Transformers: Dark of the Moon.
Hastings and Wells also chastised Comcast for capping its residential broadband customers at 250 gigabytes per month, though not counting its own Xfinity Xbox app.
"The only difference between the Xfinity Xbox data and Netflix Xbox data is the Xfinity data is favored by Comcast exempting it from the cap," the two executives wrote. "Comcast could raise the cap and make it apply equally or just eliminate the caps. Net neutrality principles mean a level playing field for all Internet applications."