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Netflix just posted Q2 earnings that beat expectations, but the stock is down more than 8% after hours on light revenue and just-OK subscriber numbers.Investors are worried because the company expects Q3 subscriber numbers to grow more slowly than they did last year because of a recent price increase.
The company also said that Facebook integration will launch soon, but only outside of the U.S.
The company reported EPS of $1.26 on revenue of $789 million — analysts were expecting $1.11 per share, but $791 million in revenue.
U.S. subscribers came in at 24.6 million, and global numbers were at 25.6 million. That’s about in line with expectations. But the company only added about 2 million net new subscribers, which is its lowest figure since Q3 of last year.
Subscribers on hybrid plans — DVD and streaming — declined a little bit during the quarter.
The quarter ended before Netflix raised prices for DVD-plus-streaming during the quarter. In its letter to investors, Netflix says “Some subscribers will cancel Netflix or downgrade their Netflix plans. We expect most to stay with us because each of our $7.99 plans is an incredible value. We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we’re working hard to further improve the quality and range of our streaming content in Q4 and beyond.”
The sliver lining: nearly 75% of new customers signed up for the streaming-only plan, which helped lower costs and keep margins higher than expected. That’s how the company was able to beat earnings expectations so handily.
Netflix says that its DVD business has “likely peaked.” That said, the company is setting up a new DVD division run by Andy Rendlich to continue “running a successful DVD by mail service in the U.S. for a long time.”
Netflix expects that by the end of Q3, it will have 12 million DVD+ streaming customers, 10 million streaming-only customers, and 3 million DVD-only customers.
The company also said it was ramping up spending on new content for streaming, as new deals with Miramax, Revolution Studios, and Open Road films were signed.
Netflix is on track to launch its first big international expansion into Latin America next quarter, and another unnamed market (probably Europe) in Q1 of 2012. The company now expects international losses of $80 million — up from $70 million — in the second half of this year as it prepares for these expansions.
Also, Netflix said that it’s making great progress on Facebook integration, which will launch before its next earnings report. The catch: it won’t be available in the U.S. because of legal restrictions on video sharing.