Among the most important questions about the spectacular second-quarter results that Netflix Inc. (NASDAQ: NFLX) posted is whether it can keep up the rate of expansion. At the end of the period, Netflix had 65.55 million members, up from 62.27 million in the previous quarter and 50.05 million in the same period a year ago. At that rate, Netflix could have 100 million subscribers in less than three years. Would Wall Street be satisfied with anything less? The price of Netflix stock at $100, up 100% so far this year, points to hugely high expectations.
Revenue for the quarter reached $1.65 billion, up from $1.34 billion in the same quarter a year ago. The magnitude of Netflix’s investment in growth was evident on the bottom line. Net income was $26.3 million, down from $71 million in the year-ago quarter.
Much of the upcoming success for Netflix will arise from growth in international markets, where it already has a presence, and new ones it hopes to add, including Japan. The company management said it even has ambitions to enter China, which has the world’s largest Internet population by far. Netflix would quickly add millions of subscribers there, if the central government would allow it. If Netflix has to program for the Chinese market to gain subscribers, new customers could come at a large expense.
A subscriber base of 100 million would push Netflix annual revenue above $10 billion. One of the questions most frequently put to management is whether the company will look like Amazon.com Inc. (NASDAQ: AMZN) then: huge growth, great innovation, but no profits. The question is very fair. Up against cable, satellite and other streaming services, the cost of future growth may be higher than the cost of Netflix growth so far.
If Netflix’s subscriber base does reach 100 million, it will be considered one of the most successful media distribution companies in history. However, at that future point, the issue that has been raised time and again is whether it can make money.
ALSO READ: Why David Einhorn Has a Right to Be Cynical About Netflix
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