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Netflix soars after adding nearly 2 million US subscribers

Anita Balakrishnan

Netflix added far more users than expected in the first quarter and posted quarterly earnings in line with expectations and revenue slightly above estimates.

The user growth sets the company up for a sunny outlook in the second quarter: The company's earnings guidance also came in well above Wall Street's forecast. Shares rose more than 6 percent after hours.

How Netflix did in Q1

— Earnings per share (EPS): 64 cents adjusted vs. 64 cents expected by a Thomson Reuters consensus estimate

— Revenue: $3.7 billion vs. $3.69 billion expected by a Thomson Reuters consensus estimate

— Total streaming net adds: 7.41 million vs. 6.5 million expected by a StreetAccount consensus estimate

— Domestic streaming net adds: 1.96 million vs. 1.48 million expected by a StreetAccount estimate

— International streaming net adds: 5.46 million vs. 5.02 million expected by a StreetAccount estimate

— Free cash flow was negative $287 million.

In January, Netflix said it expected $3.69 billion in revenue in the quarter and EPS of 63 cents, adding 6.35 million new customers in its streaming business.

A year ago, Netflix reported diluted adjusted EPS of 40 cents per share on revenue of $2.64 billion.

Guidance for Q2

— Forward guidance on Q2 EPS: 79 cents per share vs. 65 cents per share expected by a Thomson Reuters consensus estimate

— Forward guidance on Q2 revenue: $3.9 billion vs. $3.89 billion expected by a Thomson Reuters consensus estimate

— Forward guidance on net adds: 6.2 million vs. 5.24 million (974,000 domestic and 4.27 million international) expected by StreetAccount

Stepping up to challenges from Disney and Amazon

Netflix has relied on international growth and heavy investments in original content to drive subscriptions — and Monday's results provided an update on their effectiveness.

Netflix's addition of more than 7.4 million international subscribers set a new record, marking growth of 50 percent from a year ago. The company also said it expects to have $7.5 billion to $8 billion of content expenses this year, in line with previous estimates.

The company has said it expects to grow to 60 million to 90 million members in the U.S. over time and that it would spend $8 billion on content and $2 billion on marketing this year.

The company highlighted Spanish-language hit "La Casa de Papel," unscripted series "Queer Eye," and beloved franchises such as "Marvel's Jessica Jones," "Grace and Frankie," "Santa Clarita Diet" and "A Series of Unfortunate Events." Netflix also credited new talent, such as Shonda Rhimes and Jenji Kohan, for their "proven track record of success" and for allowing Netflix to cut back "reliance on third-party studios."

"We're investing in more marketing of new original titles to create more density of viewing and
conversation around each title," the company said in a statement.

The marketing spending comes after Netflix was barred from competing at the Cannes film festival due to a rule change — a setback the company called unfortunate.

Netflix faces increasing competition from Amazon and Disney , which have their own offerings, as well as traditional media companies and technology companies such as Apple. At the same time, Netflix is expanding into cable bundles and recently announced a new offering with Comcast , in addition to bundles with Sky, T-Mobile and Altice.

Netflix said on Monday the bundles allow the company to upsell existing subscribers.

"We remain primarily a direct-to-consumer business, but we see our bundling initiative as an attractive supplemental channel," the company said.

Netflix will host a video conference with Wall Street analysts at 6 p.m. ET. On Monday, Netflix also announced the addition of Susan Rice, a former national security advisor and U.S. ambassador to the United Nations, to the board of directors.

— CNBC's Julia Boorstin contributed to this report.