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Netflix plans to continue its expansion efforts by launching in its next international market towards the end of this year, the firm announced as it posted its first net loss since 2005.
“Given our expected return to global profitability in Q2, and how well we’ve been received in the UK, we’ve decided to open an additional attractive European market in Q4 of this year,” CEO Reed Hastings said yesterday on the company’s Q1 earnings call.
Hastings did not elaborate but Netflix plans to use profits from its domestic business to reach “such global scale that will allow us to license global content rights economically,” it said in its financial filings.
Netflix’s share price dropped by 16.6% in after-hours trading yesterday amid concerns about domestic sign-ups for its streaming service.
A US$5m net loss for the first quarter – caused by its recent expansion into the UK and Ireland – was better than expected, but Netflix said that domestic streaming net additions for the year will be only about the same as 2010.
The firm added 1.74 million US streaming customers in Q1 and predicted it will add just 190,000 to 790,000 in Q2, though claimed it will add about seven million US streaming customers by the end of the year.
“We see nothing new or particularly concerning this quarter to date in our member viewing, acquisition and retention. All are healthy,” claimed Hastings and chief finance officer David Wells.
In the UK, the firm said that it achieved “the highest net additions we’ve ever seen in the first 90 days of an international market launch,” although it failed to break out precise figures. Total international streaming subscribers in the quarter – for Latin America, Canada and the UK – stood at 3.07 million, compared with 23.4 million streaming customers in the US.
Netflix also said that it expects Canada to make a “small contribution to profit” for the first time in Q2 and remain profitable thereafter. However, it admitted that it will “take longer than we initially thought” to build a large, profitable business in Latin America, despite growing revenue and user numbers there.
Overall in the quarter, the firm reported global revenue of US$870m, up 21% year-on-year but down sequentially on the US$876m it made in Q4 2011. Its US$5m net loss compares to profit of US$35m in Q4 and US$60m in the same quarter last year.
Netflix said it would continue to build on its original content strategy but said it was uncertain “when or whether we will take it beyond 5% of our large content spend.”
Despite mixed reviews, Netflix said that Lilyhammer, its first original programme, is performing “in line with similar premium exclusive content that we currently license.” It also said the end of its deal with Starz in February had led to “no discernible change in churn or viewing levels.”
