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Netflix Tops 65 Million Subscribers in Q2, Citing Original Content for Strong Growth

Netflix packed on 3.3 million new members worldwide in the second quarter of 2015 — a company record for the historically weak period — and beat Wall Street earnings estimates.

The company’s net gain of 3.3 million streaming members, bringing it to total of 65.6 million, was nearly double the 1.7 million net adds in the year-ago quarter. Netflix had forecast 2.5 million new subs for Q2 2015 (600,000 in the U.S. and 1.9 million overseas); it reported 900,000 domestic and 2.37 million international net adds for the quarter.

In a letter to shareholders, CEO Reed Hastings and CFO David Wells said the higher-than-expected subscriber gains were “fueled by the growing strength of our original programming slate.” During the quarter, Netflix premiered the first seasons of “Marvel’s Daredevil,” “Sense8” from the Wachowski siblings, DreamWorks Animation’s “Dragons: Race to the Edge” and “Grace and Frankie,” as well as season three of “Orange Is the New Black.”

Netflix shares jumped more than 10% in after-hours trading Wednesday on the news. The strong results come after the No. 1 subscription-video provider notched a record 4.9 million net increase in subs worldwide for the first three months of 2015.

The execs said U.S. revenue growth also was driven by a 5% year-over-year increase in average selling price, as new subscribers opted for Netflix’s $8.99-per-month two-stream plan.

Netflix posted revenue of $1.64 billion, an increase of 23% year over year, in line with Wall Street expectations. The company posted earnings of 6 cents per share, versus analyst forecasts of 4 cents; the EPS figures are adjusted for Netflix’s 7-for-1 stock split, which took effect Wednesday. Netflix reported net income of $26.3 million, versus $71.0 million in Q2 2014.

According to the company, almost 90% of Netflix members have watched original content, “another indicator that we are on the right path,” Hastings and Wells wrote in the letter.

Netflix “will devote more investment to originals both in absolute dollars and percentage terms” going forward, including TV series, documentaries and standup specials as well as original films, the execs added. Netflix’s global content spending will approach $5 billion in 2016 on a profit/loss basis (representing about $6 billion cash).

In Q2, Netflix spent $1.27 billion on additions to its streaming-content library, up 57% from $813 million in the year-earlier period.

Netflix has set an aggressive global-expansion goal of launching in 200 countries by the end of 2016. Hastings, on a call with Wall Street analysts, said the company’s only new international markets for the remainder of this year will be those it has previously announced: Japan in Q3, followed by Italy, Spain and Portugal in October.

Earlier Wednesday, Netflix disclosed in an FCC filing that it will support Charter Communications’ bid for Time Warner Cable, given that Charter has pledged not to charge content companies interconnection fees through at least the end of 2018. Charter’s commitment “ensures that all online video providers can aggressively compete for consumers’ favor, without selective and increasing fees paid to ISPs,” Hastings and Wells wrote.

On the earnings call, Hastings said Netflix would want to see regulators require a similar condition on AT&T to not charge content-delivery fees as part of approving its acquisition of DirecTV.

Netflix had objected to Comcast’s previous play for TW Cable on the grounds that the deal would give the No. 1 cable operator too much market power; Netflix has an agreement with Comcast under which it pays the MSO for dedicated Internet connections.

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