Netflix returns 44% revenue gain

Q4 earnings outperform Wall Street; shares take off

After tacking on 4.6% during the regular session Wednesday, shares of Netflix Inc. surged as much as 10% after the closing bell on news that the DVD-by-mail rental company reported a profit that trounced Wall Street expectations.

Netflix said profit in the fourth quarter was $14.9 million, down from the $38.2 million it earned a year ago, when its bottom line was boosted by a hefty tax gain. On a per-share basis, Netflix earned 24 cents, while analysts expected 17 cents.

The company took in $277.2 million in revenue, in line with expectations and a 44% increase from last year's frame.

Netflix ended the year with 6.3 million subscribers, having added 654,000 net subs in the quarter, compared with 587,000 a year ago.

The firm said it ought to end the current quarter with up to 7 million subscribers, which analysts thought seemed light given the company's goal of 20 million subscribers sometime between 2010-12.

CEO Reed Hastings gave a nod to No. 1 competitor Blockbuster Inc. on Wednesday, calling executives there "innovative."

Hastings said that Blockbuster's marketing push behind its Total Access initiative, where its online subs can exchange movies at Blockbuster stores, should affect Netflix in the short term, similar to when Blockbuster cut its subscription price two years ago.

Then, said Hastings, churn increased by about six people per thousand quarter-over-quarter, but it largely was a single-quarter event, which he predicts also might be the case with Total Access.

Blockbuster surprised skeptical analysts Jan. 3 when it said that it added more than 500,000 subscribers since the third quarter ended to finish the year with 2 million. The company launched Total Access in November.

Hastings also reacted to news that Movie Gallery, a bricks-and-mortar competitor that has no online rental service, might have to declare bankruptcy, analysts said.

Unless bankruptcy leads to more store closures, which could spur growth at Netflix, it shouldn't have "much commercial affect on us," Hastings said.

The CEO also told analysts that Netflix will phase out the selling of banner ads at its site to dedicate that real estate to ways to "increase retention and customer satisfaction." He added that banner ads were not a big growth opportunity for Netflix.

"Being consistently great matters to subscribers," he said. "We invented this category. It's all we do, and we do it better than anyone else on the planet."

He also reiterated that the company will spend at least $40 million this year to launch its Watch Now platform for viewing movies on-demand over the Internet.
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