Netflix, Inc. (NASDAQ:NFLX) released Q2 earnings on Monday and the company continued to add to its growth and impressive subscriber numbers with just over 99 million paid memberships. EPS was just shy of its 0.16 estimates with 0.15 for the quarter. However revenues of $2.7 billion came in higher than forecasted.
International subscribers make up almost 48 million (49%) of Netflix’s total paid subscribers. In this segment the company has seen an annual compounded growth rate of 11% for the past nine quarters. In Q1 of 2015, only 32% of paid subscriptions came from the international segment.
Domestic streaming, however, has seen a slowdown in paid subscribers. Quarter-over-quarter paid memberships are growing by a mere 2.5%. However, domestic revenues and profits are what are growing the business and make up 56% of the total revenues.
Netflix is investing heavily into international markets but a close look shows that they are doing so often at losses. The international segment finally showed a positive contribution margin in Q1 of this with a mere 4% contribution, but Q2 slid right back into the negative.
It is clear that the domestic market looks pretty saturated with a growth that is almost flat each quarter. Although it would be easier to grow the international market and that is probably what Netflix wants to do to boost subscribers, the domestic market is what is subsidizing that effort right now.
Some have suggested a crackdown on password sharing which could add to the company’s subscriber base, particularly in the domestic market. The problem with that is it might also lead to subscribers leaving as well if they cannot spread the cost of membership over multiple users.
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