Netflix is on a roll, reporting second quarter subscriber additions that exceeded Wall Street projections. Original content drives the growth, attracting more than 65 million subscribers.
Orange Is the New Black, The Unbreakable Kimmy Schmidt and other such Netflix original programming are fueling the company's growth, leading the charge in Netflix's impressive growth during the second quarter of this year.
Netflix set out to conquer international markets as an Internet TV power player and has achieved tremendous growth overseas, where it hit 23.2 million subscribers compared to 13.8 million the previous year. The company saw great growth domestically as well, gaining 900,000 more domestic subscribers for a total of 42.3 million.
"In Q2, we eclipsed 65 million members, with over 42 million in the U.S. and 23 million internationally. We are at the forefront of a wave of global Internet TV adoption and intend to make our service available throughout the world by the end of 2016," Netflix touted in a letter to shareholders.
Netflix CEO Reed Hastings previously estimated that growth potential could reach 60 million to 90 million subscribers for its streaming service in the U.S., and in the new call with investors he maintains this estimate. Hastings believes Netflix can keep up this pace and achieve that milestone.
The company believes the higher-than-expected performance is due to its original programming, which attracts an increasing number of users. In the second quarter (Q2) of 2015, Netflix's original programming slate included the highly anticipated season 3 of Orange Is the New Black, as well as the first seasons of Marvel's Daredevil, Sense8, Dragons: Race to the Edge, and Grace and Frankie.
At the same time, the company's Q2 profits also reflect the risks of expanding operations and business in global markets. Netflix saw a 63 percent drop in profits in the second quarter, as it faced higher costs for buying and creating content. More specifically, the company reported a Q2 profit of $26.3 million (6 cents a share), down from $71 million (16 cents a share). The strong U.S. dollar also resulted in a lower value of revenue generated from abroad.
Revenue jumped from $1.34 billion to $1.64 billion in the second quarter, while the company's free cash flow reached $229 million in Q2 compared to $163 million the previous quarter. This change in free cash flow is also related to the big investments Netflix made in original programming.
Shares started trading Wednesday, July 15, at the new price to reflect the 7-for-1 stock split Netflix declared earlier in the day. News of the Q2 results drove shares to surge 9.4 percent to nearly $108, as investors took to the stock in after-hours trading.
The company aims to further expand its global presence in the future. Netflix is set to reach Japan, Spain and Italy this fall, and complete its planned 200-country expansion by 2016.
"We're pleased to see the growing momentum of our original programming driving string growth in the U.S. and abroad. With our first set of international markets having achieved contribution profitability, we'll be making out first foray into Asia this Fall with our Japan launch, and are gearing up to offer our service around the globe," the company further noted in its letter to investors.
