Netflix scrapes a profit in Q2, cautions on Olympics effect

US online video service Netflix has finally put its travails of the past year to bed and returned to profit for the second quarter of this year, but CEO Reed Hastings warns that the next three months will be tough due to the Olympics.

The company posted a net profit of US$ 6mn for the three months to June, compared to a net loss of US$ 5mn for the first quarter of 2012, while revenues increased from US$ 870mn to US$ 889mn by the same comparison.

Netflix added just over half a million subscribers for its online video streaming services in its domestic market of the US in the second quarter of this year, bringing the total to 23.9mn (of which 22.7mn were paid subscribers).

In a letter to shareholders (here), CEO Reed Hastings predicts that if third-quarter additions are in the high end of an estimated range of 1mn to 1.8mn then the company will remain on track to add 7mn domestic subscribers in 2012.

Mr. Hastings also says that per-member viewing continues to rise on an annual basis in the US, and that Netflix’s reputation with members is steadily improving: his original prediction is so far holding firm that it will take three years for the Netflix brand to recover from the troubles of last year (which revolved around an unexpected price hike and partial rebrand).

However, the London 2012 Olympics are expected to negatively affect video viewings and signups in the third quarter of this year, as customers look elsewhere for live coverage of the planet’s biggest sporting event.

Elsewhere, the company added 0.56mn international video streaming customers in the second quarter of this year, bringing the total to 3.62mn (of which 3.02mn were paid subscriptions).

After launching in the UK and Ireland in the first quarter of this year, the company has now reached 1mn members in these two markets, and will continue to expand and refresh its content offerings, thanks to studio deals such as that recently signed with Twentieth Century Fox.

In Canada, the company achieved a small profit, and expects to remain profitable going forward as it manages content and marketing expenses to grow more slowly than members and revenue.

In Latin America, Netflix has also reached over 1mn customers, and is focusing on accelerating growth by addressing the region’s key challenges, which include low device penetration, underdeveloped broadband infrastructure, and consumer payment challenges for e-commerce.

Finally, Mr. Hastings also repeated that the company will be opening in an additional European market in the fourth quarter of this year (widely rumoured to be Sweden), and will reveal more details in the next few months.

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