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Netflix now has 40 million subscribers around the world, with 31 million in the United States.
Netflix now has 40 million subscribers around the world, with 31 million in the United States.

Netflix chief sounds alarm after second-quarter earnings surge Add to ...

As Netflix Inc. extended its run as one of the best performing stocks in the United States so far this year, its chief executive officer sounded a warning to investors.

“Every time I read a story about how Netflix is the highest appreciating stock in the S&P 500 it worries me,” Reed Hastings said during a webcast with analysts on Monday, after his company posted better-than-expected second quarter earnings. “We have a sense of momentum investors driving the stock price more than we might normally. There’s not a lot we can do about it, but I wanted to honestly reflect upon it.”

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The company doesn’t usually provide commentary on its stock price, but Mr. Hastings said he felt compelled to address the gains given that the company’s shares have shot up almost 440 per cent in the last year. They gained another 10 per cent after Monday’s close as the company posted a $38.1-million (U.S.) profit, compared with only $7-million a year ago. Revenue rose 22 per cent to $1.1-billion.

Shares jumped 10 per cent to $391.47 in after-hours trading on the Nasdaq.

The video-streaming (and DVD rental) company now has 40 million subscribers around the world, with 31 million in the United States. Its international operations are adding subscribers quickly, with 1.4 million new customers in the last quarter. But the bulk of its profits come from its U.S. home base, as the international division lost about $74-million. The company doesn’t break out Canadian numbers, though recent data from the Canadian Radio-television Communications Commission estimates 2.5 million Canadian subscribers.

“Our success this year in increasing international net additions to nearly the level of our domestic net additions shows substantial momentum and confirms our belief there is a big international opportunity for Netflix,” the company stated in its letter to shareholders.

The service’s popularity has been traditionally been driven by its low cost, but increasingly subscribers have found their way to Netflix because of its original programming. While its program House of Cards, starring Kevin Spacey, was recognized at the Emmys this year with a best director award, Orange is the New Black is on track to set the end-of-year record as the most-watched show the company has produced so far.

That has Netflix literally doubling down on content – it wants to double what it is spending on its own productions in the coming year and is “actively looking” to produce its own documentaries. The strategy would seem to put the company in direct competition with cable companies that are eager to hang on to subscribers, but Mr. Hastings said there is little evidence that Americans are cancelling their cable subscriptions and relying entirely on Netflix for their television programs. That echoes the findings of Canadian television executives, who insist Netflix has been more of a complementary service than a rival one.

He said while Netflix has hit 31 million subscribers in the United States, the number of cable-subscribing households has held steady near 100 million. The trend is similar in Canada: While the pace of growth has slowed, the country’s subscription television industry is still adding more new subscribers each year than it is losing.

“The trend has been quite clear – there is zero cord cutting,” he said. “A question is will it last, and that really depends on if cable continues to get better. Consumers are getting a lot of content out of cable and our market hasn’t been the cord cutter market.”

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