Netflix added 5.15 million new streaming subscribers in the second quarter, for a total base of 130.14 million at the end of June. The growth was less than the company's forecast for 131.2 million customers in June, and Netflix's share price fell 14 percent in after-hours trade.
Growth in the US slowed to 674,000 new streaming customers for a total of 57.38 million. Outside the US, the company added 4.4 million new customers to reach 72.76 million at the end of June. Both areas were less than expected. The DVD business dropped to 3.0 million customers in Q2.
Revenues were still up 40 percent year-on-year to USD 3.91 billion, leaving a contribution profit of USD 1.09 billion and a record margin of 27.9 percent. The margin in the US improved to 39.1 percent, while the international operations reached a margin of 15.5 percent. Operating profit increased 262 percent to USD 462 million, with a margin of 11.8 percent. For the full year 2018, Netflix lowered its margin target to the low end of 10-11 percent. The company's net profit increased six-fold to USD 384 million in Q2, which Netflix described as "strong but not stellar".
After negative free cash flow of USD 559 million, Netflix ended the period with cash of USD 3.91 billion. It issued USD 1.9 billion in debt in Q2, bringing the company to almost USD 6 billion issued since Q4 2016.
For the third quarter, Netflix expects to add 651,000 streaming customers in the US to reach a total of 58.03 million and a contribution margin of 37.8 percent. International net additions are estimated to slow to 4.35 million for a total of 77.11 million, and generate a contribution margin of 14.7 percent. Revenues are forecast up 34 percent to USD 3.99 billion, the operating profit should double to USD 420 million, and net profit will more than double, to an estimated USD 307 million.
Netflix will continue with its strategy of original productions, which are now underway in 80 countries. Innovations, such as the recent smart downloads, and distribution agreements should support growth. The company noted that for the first time it was nominated for more Emmy awards this year than HBO, giving it artistic success alongside its commercial advances. While tough competition will continue, this also underlines the market opportunity, Netflix said, noting some of biggest rivals will be the new combination AT&T /Warner Media, the proposed merger of Disney/Fox (or Comcast/Fox), Germany's ProSieben and the new French broadcasters initiative Salto.
