Netflix Spending Spree Spurs Subscriber Growth of 5 Million in Second Quarter

Reed Hastings - H 2016
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The streamer had a strong second quarter, reaching nearly 104 million total subscribers, based on a slate of returning hits like 'House of Cards' and 'Orange Is the New Black,' as well as buzzy new shows including 'Glow.'

Investors were anticipating a big second quarter for Netflix given the high-profile return of House of Cards and Orange Is the New Black during the period. And the streaming giant did not disappoint. 

Netflix reported that it added 5.2 million subscribers during the three-month period, up from 4.95 million new subscribers during the previous quarter. Subscribers is still the all-important metric for Netflix, which when it didn't top 100 million paying members last quarter saw a dip in its stock price. (CEO Reed Hastings celebrated the eventual milestone with a solo steak dinner at Denny's.) 

Last earnings report, Netflix said that it expected to add 3.2 million subscribers during the second quarter. It surpassed those expectations by growing to nearly 104 million total members during a quarter that has traditionally been weak for its business.

In a letter to shareholders, Netflix attributed the strong quarter to its "strong slate of content." Netflix's first breakout, House of Cards, typically returns during the first quarter, but this year its new season was released during the second quarter. All told, Netflix premiered 14 original series, including Orange Is the New Black and Master of None, during the second quarter. That's in addition to 13 original comedy specials, six documentaries, two documentary series, nine feature films including Okja and seven original kids shows. Teen sensation 13 Reasons Why, meanwhile, premiered at the very end of the first quarter on March 31 but gained momentum into April. 

The majority of Netflix's growth is happening internationally, where it gained 4.14 million new subscribers during the quarter, compared to 1.07 million additions in the U.S. All told, Netflix now has more subscribers internationally (52.03 million) than it does in the U.S. (51.92 million). 

The company is continuing to see revenue gains as it adds more subscribers, growing revenue by nearly 30 percent during the second quarter to $2.97 billion and reported earnings of 16 cents per share. 

Analysts were anticipating revenue of $2.76 billion and earnings of 16 cents per share. 

Netflix is continuing to up its programming budget with plans to spend $6 billion on content this year. But that doesn't mean all shows are safe from cancellation. Netflix addressed its recent decision to cancel shows including The Get Down and Sense8 in the shareholder letter, noting that "sometimes those shows don't attract as many viewers as we had hoped, compared to our other content. As much as we dislike ending a series early, it consoles us that it frees up investment for another new show, or two." 

Later, during a conference call with investors, content chief Ted Sarandos elaborated on the cancellations, noting that "failure is not such a bad thing. If you're not failing, maybe you're not trying hard enough." He also added that 93 percent of Netflix's shows have been renewed and that, sometimes, it makes sense to ask the questions, "are we being adventurous enough?"

Netflix stock closed the day flat at $161.70 per share. It was trading up more than 10 percent afterhours on the strong subscriber growth.