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Netflix (s NFLX) investors shouldn’t get too excited about the company’s narrow return to profitability in the second quarter. It will be short-lived.
Netflix executives said Tuesday that the $6 million in profit it just posted — which followed a $5 million loss in Q1 — should give way to another loss in Q4 as it prepares to expand in Western Europe beyond the U.K. and Ireland.
Speaking to investors after releasing their company’s Q2 data, Netflix CEO Reed Hastings and CFO David Wells described a kind of strategic cycle: the company waits to return to profitability, makes sure all of its other foreign markets are growing, then launches into a new region in which in feels there’s growth opportunity.
With Netflix revealing Tuesday that it has brought in nearly 1 million subscribers in its first six months of operation in the U.K. and Ireland, it feels the time is right to expand further into Western Europe.
“We see a big opportunity in Europe to provide an on-demand service, the likes have not been seen before,” Hastings said. “We’ve been extremely pleased with the U.K. launch, and we’re feeling quite good about our competitiveness in Europe.”
Overall internationally, Netflix lost $89 million in the second quarter, down from a $103 million loss posted in Q1. Subscribers in Canada, Latin America, the U.K. and Ireland totalled 3.62 million, just short of the 3.7 million expectation set by investment analysts. The company added 560,000 new subscribers in those regions during Q2, down from 1.2 million in Q1.