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Netflix adds record number of subscribers as it expands overseas

Netflix's aggressive expansion overseas sent the number of subscribers past 60 million for the first time

Netflix Inc., home to "House of Cards" and recent entry "The Unbreakable Kimmy Schmidt," reported first-quarter results that exceeded Wall Street projections as the company's aggressive expansion overseas sent the number of subscribers past 60 million for the first time.

The on-demand video company said Wednesday that it added a record 4.9 million customers from January to March, with more than half of that number coming from overseas. Netflix said its 62.3 million subscribers watched some 10 billion hours of programming during the first quarter.

But what really revved up Wall Street was Netflix's forecast of gaining an additional 2 million subscribers during the second quarter as it continues its expansion into Japan and other markets. Shares of the company soared 13% in after-hours trading after it closed at $475.46 in the regular session.

"The markets will respond first and foremost to subscriber growth," said David Miller, an analyst at Topeka Capital Markets. "And they blew it out."

The Los Gatos, Calif.-based company said in a letter to shareholders that profit fell to $23.6 million, or 38 cents a share, during the quarter. However, Netflix pointed out that results would have been 77 cents a share after excluding foreign exchange losses. The results were below the year-ago period's profit of $53 million, or 86 cents a share. Analysts, on average, expected a profit of 69 cents a share.

Revenue came in at $1.57 billion, up 24% from the year-ago period.

Netflix has been in the midst of a global push for new customers as it has seen new members taper off in the U.S. The company has launched in France, Australia, New Zealand, and Cuba, among other territories. And the work seems to be paying off. The company added 2.6 million members outside the U.S., exceeding its own forecast of 2.25 million.

The company expects to complete its 200-country expansion by 2016. It also plans to shift some of its U.S. marketing budget over to its international operations to help fund the rollout.

"We think strong U.S. growth benefited from our ever-improving content, including the launch of the third season of 'House of Cards' and new shows 'Unbreakable Kimmy Schmidt' and 'Bloodline,'" Netflix Chief Executive Reed Hastings and Chief Financial Officer David Wells said in a letter to shareholders. "Our original content strategy is playing out as we hoped, driving lots of viewing in an economic way for Netflix while bolstering the positive perception of our brand and service around the world."

Hastings and Wells played down concerns of rising competition on the digital front. HBO earlier this month launched its online-only service HBO Now. They believe the two services should not be viewed as substitutes for one another, but as complementary.

The letter also pointed out that other multichannel video programming distributors, such as Apple Inc., Dish Network Corp. and Sony Corp., should be viewed as more of a threat to the "current pay TV bundle than to Netflix," adding that Netflix is lower cost and not focused on live television.

In the face of rising competition, Netflix has also ramped up the number of original programming hours this year and spent about $3 billion on content in 2015.

In its first quarter it delivered the new season of "House of Cards," and the Tina Fey-created comedy "Unbreakable Kimmy Schmidt" and thriller "Bloodline" both released in March. And it recently launched "Marvel's Daredevil" and has the Jane Fonda-Lily Tomlin comedy "Grace and Frankie" in the pipeline, as well as the Wachowski drama "Sense8."

And earlier on Wednesday, the company picked up "Orange Is the New Black" for a fourth season with a 2016 rollout, and also announced its biggest documentary project: the eight-part docu-series "Our Planet," which is expected to debut in 2019.

Copyright © 2016, Los Angeles Times
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