Netflix posted another strong quarter of subscriber growth and earnings, but revenue missed. Shares shot down 9% after hours.
The company’s guidance shows more of the same ahead: Strong subscriber growth, but weaker revenue growth.
Why is revenue so weak?
A shift toward cheaper plans, particularly the $8.99 plan, which allows for unlimited Internet movie streaming but fewer DVD rentals at a time.
As a result, Netflix’s average monthly subscriber bill last quarter was $12.29, down a dollar from $13.29 a year ago.
But margins are improving because customers are renting fewer discs as they stream more Netflix content over the Internet, which keeps postage costs lower. Thus the strong profits on weak revenue.
Netflix said 61% of its subscribers are now streaming more than 15 minutes over the Internet, up from 55% in Q1 and 37% in the year-ago quarter.
This trend will obviously continue as more Netflix subscribers stream more movies over the Internet. This could potentially force Netflix to raise their fees, or just to deal with lower revenue per subscriber.
Meanwhile, the company finished June with 15 million subscribers, at the high end of guidance, and up 42% year-over-year.
But revenue was weaker than expected: Netflix reported $519.8 million in Q2 sales, at the low end of guidance and below the Street’s $524 million consensus.
EPS came in at $0.80, a dime above the Street.
Netflix’s guidance looks OK, too. The company expects to finish Q3 with 16.5 million subscribers, which is strong. But it’s only expecting a midpoint of $550 million in revenue, which is below the Street, and its EPS midpoint of $0.68 is in line.
Here’s the NFLX “cheat sheet” courtesy Citi analyst Mark Mahaney:
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