Netflix grew 27% in Q2 2007 but misses the mark, reforecasts
Netflix reports second quarter 2007 revenue of $303.7 million. That was a 27% year-over-year increase from $239.4 million for the second quarter of 2006, but not enough to stave off a reforecast for the year.
“As expected, second-quarter revenue and subscriber growth reflected the impact of intense competition, as we delivered subscribers and revenue at the low end of our guidance range, even while achieving near record net income,” says Reed Hastings, Netflix co-founder and CEO.
To compound the bad news, Netflix’s web site was down from late Monday until Tuesday afternoon for undisclosed reasons. Internet monitoring company Hitwise reports that site traffic was down 10% for Monday, compared to one week earlier.
In an effort to grow subscriptions to its online DVD and video rental business, Netflix cut the prices on two of its most popular plans. Those cuts, along with previous price reductions in February and June, and unidentified marketing cuts, aim to hold Netflix’s position in an increasingly competitive market, Hastings says. As a result “we are lowering our full-year guidance for revenue, subscribers and earnings accordingly,” he adds.
Despite its year-over-year Q2 growth, Netflix, No. 18 in the Internet Retailer Top 500 Guide, recorded a 1% decline in sales compared to the first quarter of 2007. Gross margin for the second quarter of 2007 was 35.2%, compared to 37.1% for the same quarter of 2006 and 36.1% for Q1 of 2007.
Netflix ended the second quarter of 2007 with approximately 6.7 million total subscribers, representing 30% year-over-year growth from about 5.2 million total subscribers at the end of the second quarter of 2006, and a 1% sequential decline from about 6.8 million subscribers at the end of the first quarter of 2007. Net subscriber change in the quarter was a decrease of 55,000, compared to an increase of 303,000 for the same period of 2006 and an increase of 481,000 for the first quarter of 2007.
Netflix’s new performance expectations for the full-year 2007 are for revenue of $1.17 billion to $1.185 billion, down from $1.21 billion to $1.26 billion and subscribers to range from 6.8 million to 7.3 million, down from 7.3 million to 7.8 million.
The two Netflix plans that were reduced by $1 this week provide unlimited DVD rentals and the ability to watch movies and TV series on a PC for no additional charge. The $9.99 monthly plan was reduced to $8.99 and provides unlimited DVD rentals with one DVD out at a time, and nine hours of movies and TV series viewing on a PC. The $17.99 monthly plan was reduced to $16.99 and provides unlimited DVD rentals with three DVDs out at a time and 17 hours of movies and TV series on a PC.
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