Netflix history good, future iffy

Q1 revenue up 7%, but stock takes hit on soft forecast

Netflix stock, up 49% this year, was hammered after the closing bell Monday when the company said it merely matched financial expectations in the first quarter, then said it didn't expect to add many subscribers in the current period.

Netflix earned $13.4 million in the first quarter, up from $9.9 million a year ago on revenue that rose 7% to $326.2 million. The company ended the quarter with 8.2 million subscribers, 21% more than in the same quarter a year ago.

But while the company added a net 764,000 subscribers in the first quarter, it said it expects to end the current quarter with 8.3 million-8.5 million subscribers, translating — at the low end — to a gain of 60,000 this quarter.

Netflix, however, raised year-end guidance to 9.1 million- 9.7 million subscribers, up 200,000 at both ends. But investors weren't impressed, and the stock was off as much as 15% in after-hours trading after rising 2% to $39.32 during the regular session.

Netflix CEO Reed Hastings also said Monday that he has struck three more partnerships for delivering movies over the Internet to TV screens, like one announced in January with LG Electronics.

Hastings declined to name the companies but said one is small and two are large. His intent is to get the Netflix watch-instantly system into Blu-ray Disc players, set-top boxes, game consoles and TV sets so that movies can be easily viewed on-demand by Netflix customers on TV screens and not just computers, as is the case now.

The large partners should introduce products in the fourth quarter, while the small partner's product is expected sooner, Hastings said.

He said Netflix's subscription growth should be strong enough to "aggressively fund" the watch-instantly service, which boasts 9,000 movie and TV titles.

Hastings also said he will introduce a price increase for customers who request Blu-ray discs.

Customers, he said, are used to paying more for high-definition content, so they shouldn't object to a "modest premium" for Blu-ray. He predicted that the DVD market should "remain enormous for years" after Blu-ray's recent victory over HD DVD in the format war.

Netflix also reported record-low average subscriber-acquisition costs of $29.50, down from $47.46 a year ago. Investors expected a large improvement because Blockbuster has reined in its aggressive effort to grow its competing service to instead focus on making it profitable.