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Netflix Stock Jumps On 'Less Bad' Q2 Earnings, Nascent Ad Service Plans

"We're talking about losing 1 million instead of losing 2 million," said CEO Reed Hastings of the smaller-than-expected subscriber exodus. "So our excitement is tempered by the less bad results."

Updated at 9:40 am EST

Netflix  (NFLX)  shares surged higher Wednesday after the streaming entertainment service topped second quarter earnings forecasts and posted a smaller-than-expected paid subscriber exodus.

Netflix lost 970,000 paid subscribers over the quarter, the company said, less than half of the anticipated 2 million exodus, helping revenues rise 8.6% from last year to $7.97 billion.

Profits for the three months ending in June were pegged at $3.12 per share, a figure that was 5% higher than the same period last year and firmly ahead of the Street consensus forecast of $2.97 per share.

Netflix said it will add around 1 million subs over the three months ending in September, but that tally is still south of the market's 1.8 million forecast. It's third quarter earnings forecast of $2.14 per share was also well shy of the Street's expectation of $2.72 per share.

"Looking at the quarter we're executing really well on the content side," CEO Reed Hastings told investors on a conference call late Tuesday. "We're improving everything we do around marketing, improving the service, the merchandising, and all of that pays off."

"But again, we're talking about losing 1 million instead of losing 2 million," he added. "So our excitement is tempered by the less bad results."

Netflix shares, which closed 5.6% higher on the Tuesday session, were marked 1% higher in early trading to change hands at $203.32 each, a move that would still leave the stock nursing a year-to-date decline of around 67%. 

Apart from the 970,000 lost over the three months ending in June, Netflix also lost 200,000 subscribers over the the first three months of the year thanks to a mix of rising prices, increasing competition and password sharing.

To combat that exodus, Netflix plans to launch an ad-supported streaming services, priced at a discount to its traditional offering, and noted that it's in the "early stages" of rolling out a global plan that will prevent password-sharing.

An ad-support plan could bring in an additional 4.3 million subscribers in the U.S. and Canada, Netflix analyst John Blackledge from Cowen estimated earlier this month, helping its global total rise to around 240 million by the end of next year.

"We’ll likely start in a handful of markets where advertising spend is significant," Netflix said. "Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering."