Netflix posts first loss since 2005, shares plunge
The loss and the company's overall results were in line with analysts' estimates and Netflix's own guidance. But shares plunged 15% in after-hours trading. Apparently some investors thought analysts expectations were too gloomy and were concerned by indications in the results that the company’s foreign operations are moving slower than expected toward profitability.
Netflix reported a net loss of $5 million on revenue of $870 million in the first three months of 2012, compared with a profit of $68 million on $789 million in revenue during the same period last year.
The company added 1.74 million subscribers to its streaming service in the U.S. but lost 1.1 million DVD subscribers. Overseas, where the company operates in Canada, Latin America, Great Britain and Ireland, it added 1.2 million subscribers.
In total, Netflix had about 26.5 million customers in the U.S. and 3.1 million in other countries as of March 31.
The company's international operations accounted for a $103-million loss. In a letter to investors, Chief Executive Reed Hastings and chief financial officer David Wells said Canada will deliver a small profit in the current quarter, about a year and a half after launch and earlier than expected.
But Latin America, Great Britain and Ireland will take longer than two years, the company said, a warning that apparently concerned some on Wall Street. Netflix warned that it has been facing problems with awareness, device penetration, Internet infrastructure and online consumer payments in Latin America.
"The odds of us building a large, profitable business in Latin America are very good, but it will take longer than we initially thought," Hastings and Wells wrote.
Netflix's U.S. streaming business generated $67 million in profit on $507 million in revenue and its DVD business $146 million of profits on $320 million in revenue. The fact that DVDs are more profitable but losing subscribers to the less profitable streaming business has concerned some investors. But Hastings and Well said they expect streaming video's profit margin to continue growing.
The duo also wrote that after some success with their first exclusive series, the Danish import "Lilyhammer," and interest in its upcoming originals, including the return of "Arrested Development" and the Kevin Spacey polical series "House of Cards," they now view original programming as a "strategic expansion" instead of a "strategic experiment."
Meanwhile, Netflix viewers are increasingly choosing television over movies on the company's streaming service, a trend accelerated by the recent loss of new releases from Sony Pictures and Walt Disney Studios via a deal with pay cable channel Starz that expired in February.
-- Ben Fritz
Photo: Netflix's website.