A quick look at Netflix’s Q1 results: It added 1.42 million streaming subscribers in the U.S. and another 3.53 million in the rest of the world.
Netflix missed its Q1 subscriber numbers but Q2 looks better
Reed Hastings added five million subs. Wall Street wanted more.
Asa Mathat
Peter Kafka covered media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.
Netflix had told Wall Street to expect 1.5 million domestic subs and another 3.7 million internationally.
The second quarter of the year shows more promise, at least in terms of investor expectations. The company told investors that it would add 600,000 domestic subs in Q2 and another 2.6 million outside the U.S. Wall Street had expected 364,000 and two million respectively.
Notice how we haven’t told you about Reed Hastings’s revenue and earnings numbers? That’s because Netflix trades almost entirely on its subscriber story, and investors are increasingly fixated on its international numbers as it tries to stream video in nearly every country in the world except for China.
In this case, the stock is off 3 percent in after-hours trading.
Last quarter, when Netflix reported record subscriber numbers, shares immediately jumped 9 percent.
Now, Hastings tells investors, it’s time to stop obsessing about subscriber numbers and start looking at revenue and margins. “For the last several years we’ve had flat operating margins due to established markets funding international expansion with every spare dollar we had,” he wrote in his quarterly letter to shareholders. “Because of that, the major indicators of our progress were member and revenue growth and U.S. contribution margins. Starting this year, we can be primarily measured by revenue growth and [global] operating margins as our primary metrics.”
Also of note in Hastings’s letter: A rare admission that Netflix funded an original piece of content that didn’t work.
Netflix famously doesn’t release viewer numbers on any of its programming. Instead, it tells outsiders to trust it when it tells them that the billions it invests in content is well spent.
This time around, though, Hastings concedes that its efforts to create its own movies haven’t always worked. While he says his multi-movie deals with Adam Sandler — derided both in and outside of Hollywood — are winners, he acknowledges that not every movie is a gem.
Specifically, he singles out the “Crouching Tiger, Hidden Dragon” sequel Netflix released a year ago, as one of its first forays into movies.
Netflix wants to “offer a variety of new movies that will attract and delight members at better economics relative to licensing movies under traditional windowing,” Hastings wrote. “Some of our early movies have been successful by this measure, such as the Sandler movies and ‘Siege of Jadotville.’ Others, such as ‘Crouching Tiger, Hidden Dragon: Sword of Destiny,’ have not.”
One last note: Hastings says Netflix is still uninterested in streaming live sports, even though rival Amazon is increasingly interested in sports and just signed up to stream NFL games. “That is not a strategy that we think is smart for us since we believe we can earn more viewing and satisfaction from spending that money on movies and TV shows.”
This article originally appeared on Recode.net.
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