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Netflix Tops Q2 Subscriber Growth Targets, Forecasts Strong International Expansion

Netflix added a total of 1.69 million net streaming subscribers in the second quarter of 2014, packing on 16% more customers for its video-streaming subscription service than expected to stand at 50 million worldwide.

The company added a net 570,000 U.S. streaming customers and 1.12 million international subs. Netflix had expected to add a net 520,000 domestic and 940,000 international streaming customers in the period, as announced with its Q1 results.

And Netflix forecast stronger growth overseas: The company expects to add 2.36 million international subs and 1.33 million domestically in the third quarter.

“Our broad success from Argentina to Finland has convinced us to further invest aggressively in global expansion,” Netflix CEO Reed Hastings and CFO David Wells wrote in their quarterly letter to shareholders.

SEE ALSO: Netflix Defends Chelsea Handler Deal

In September, Netflix plans to launch service in six new European countries: Germany, France, Luxembourg, Belgium, Austria and Switzerland. Analysts predict rollouts in the next two years in Spain, Poland, Italy, Portugal, Australia and New Zealand.

Even after the 2014 launches in Europe, Netflix said, it will serve only about one-third (271 million of 728 million, citing figures from SNL Kagan) of current global broadband households, “providing a great opportunity to build on our international success beyond 2014,” the execs said.

For the second quarter, Netflix posted revenue of $1.34 billion in revenue, in line with Wall Street forecasts, and net income of $71 million ($1.15 per share), compared with analyst expectations of $1.16 per share, according to a Thomson Reuters poll.

The company ended Q2 with 13.8 million international members — up 78% year over year. Netflix reported an international contribution loss of $15.3 million for the period, but the execs said the non-U.S. business “has been rapidly approaching contribution profitability as we see improvements across all existing markets.”

In May, Netflix announced that it would increase the price of its most popular plan (with two concurrent HD streams) for new members by $1 per month, to $8.99. The company said it saw “minimal impact on membership growth from this price change.”

Analysts expect Netflix to funnel the additional revenue from the price increase in content investments, rather than boosting margins. For Q2, U.S. streaming margins increased to 27.1%, up expanded 460 basis points year over year. The company said it will re-evaluate its current margin-growth target of 400 basis points year-over-year “once we achieve a 30% contribution margin sometime next year.”

On the original content front, Netflix said the June 6 release of “Orange Is the New Black” season two, in its first month, became the most-watched series in every territory.

Netflix touted its recent Primetime Emmy nominations haul, garnering 31 nods this year (more than twice the 14 last year, its first year of releasing originals). “OITNB,” submitted as a comedy, received 12 Emmy noms, more than any other series in the category, while nominations for its other high-profile series, “House of Cards,” grew from nine last year to 13 this year.

In the shareholder letter, Netflix revealed that this fall it plans to launch physical gift cards in select stores in the U.S., Canada, Mexico and Germany. The company included a mock-up of a Netflix card with $30 in value. “In mature markets, gift cards will extend our brand presence and make it easier to access Netflix,” Hastings and Wells said. “In newer markets, gift cards help build the brand and provide an easier alternative for consumers to join Netflix in markets with developing online payments.”

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