In case there was any doubt of the momentum Netflix has been able to build as video stores continue to cede market dominance to on-demand streaming and by-mail and kiosk-based rentals, the company today announced that it has 40% more subscribers, 21% higher revenue, and 22% higher profits than last year.
“We believe that the inclusion of streaming in our service has broadened the appeal of Netflix and is driving growth…essentially, both Netflix and Redbox are growing at the expense of video stores.” said Netflix CEO Reed Hastings in the company’s earnings call this afternoon.
Netflix beat Wall Street estimates, posting earnings per share of 54¢ instead of the 50¢ expected by analysts. The company also bumped up its outlook for the rest of the year, anticipating between .65-.67 billion in revenue (from the previous .63 B – .67 B) and between 11.6-12 million subscribers (from 11.2-11.8 million).
“In our most highly penetrated market, of the San Francisco Bay area where 20.7% of households now subscribe to Netflix versus 9.1% nationally, the tech innovation factor around streaming is very high, and high-speed cable broadband is widely available. Because of all of that, growth in our subscribing households in the Bay Area is increasing at about 2% points per year. We believe the Bay Area is a leading indicator of Internet behavior elsewhere in America,” Hastings said.
“We are on pace to have more and more CE products include the Netflix (streaming) client every quarter,” Hastings continued. “We’re excited in particular by two big improvements to streaming coming in Q3. Microsoft is rolling out version 3 of Silverlight…and in Mid-August, Microsoft’s Xbox is rolling out a new Experience, which includes a new Netflix client where subscribers can choose movies right on the Xbox, rather than go to their laptop to add to their Queue.”
But Xbox 360 users won’t be the only Netflix subscribers reaping the benefits of improved streaming. Hastings said, “We are continuing to push up our Streaming content spending, consistent with our goals next year of maintaining 10% operating margins and strong subscriber growth.”