Stock drops in after-hours trading

Netflix reported lower net income in the second quarter as global paid streaming customers topped 150 million, but growth was below forecasts.

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Net income was $271 million, or 60 cents a share, down from $384 million, or 85 cents a share a year ago. The results included a non-cash unrealized loss from foreign-exchange.

Revenue rose 26% to $4.923 billion.

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Streaming content costs $18.5 billion, up from $18.4 billion a year ago, but down from $18.9 billion in the first quarter.

Netflix said global paid consumers rose to 151.6 million from 124.35 million a year ago and 148.86 million in the first quarter. The company expects to have nearly 159 million subscribers by the end of the third quarter.

U.S. subscribers were 601 million, up from 55.96 a year ago, but down from 60.23 in the first quarter. The company said it expects a return to growth in the third quarter and reach 60.9 million U.S subscribers.

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The subscriber numbers were lower than Wall Street forecasts and Netflix stock dropped about 10% in after-hours trading

“Our missed forecast was across all regions, but slightly more so in regions with price increases,” the company said in its letter to shareholders.

“We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region). Rather, we think Q2’s content slate drove less growth in paid net adds than we anticipated,” the company said.

Netflix also forecast that third quarter net income would be $470 million on revenues of $5.26 billion.

The company also looked to damper speculation that Netflix will be adding advertising in the near future to raise revenue to help pay back the money it borrows to pay for programming.

“We like HBO, are advertising free. That remains a deep part of our brand proposition,” the company said in the shareholder letter. “When you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”

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