Netflix 2nd-quarter profit, sales jump as subscriber base grows

Thursday, July 23, 2009

Netflix posts higher 2Q profit, sales

NEW YORK — Netflix Inc.’s second-quarter profit coasted past expectations as recession-weary customers continued to embrace its DVD-by-mail and streaming movie service.

Los Gatos, Calif.-based Netflix also boosted its 2009 profit outlook and said it expects to end the year with more subscribers than previously estimated.

Netflix said Thursday it earned $32.4 million, or 54 cents per share, up 22 percent from a profit of $26.6 million, or 42 cents per share, a year earlier.

The results beat Wall Street’s expectations for a profit of 50 cents per share.

Revenue jumped 21 percent to $408.5 million, just slightly below the $409.7 million predicted by analysts polled by Thomson Reuters.

The company had about 10.6 million subscribers at the end of June, a 26 percent increase from a year earlier.

“We continued to execute very well in the second quarter and are on track to deliver a record 2009,” Reed Hastings, co-founder and CEO, said in a statement. “As our subscriber base and disc shipments continue to expand, and as we offer more opportunities to watch instantly via the Internet, we believe we are striking the right balance between growth, investment and earnings.”

Netflix has been a bright spot in the recession as customers have turned to movies as cheaper, at-home entertainment. Most of the company’s subscribers pay $9 to $17 per month to rent one to three DVDs at a time. They can also stream unlimited movies and TV shows through the Internet at no extra cost — though because of licensing limitations there are far fewer videos available for streaming than on a disc.

Edward Woo, an analyst with Wedbush Morgan, called the results “very positive across the board.”

Besides the recession pushing people toward cheap entertainment, Woo said Netflix’s digital strategy is also key to its success.

Because there is not extra charge for streaming, he said, “people view it as free.” The instant-streaming service is also keeping customers with Netflix who may have left had it stayed a simple DVD-by-mail chain.

For the current quarter, Netflix forecast a profit of 39 cents to 47 cents per share, on sales of $416 million to $422 million. That’s in line with analysts’ estimates of a profit of 45 cents per share on revenue of $417.8 million.

Looking ahead, Netflix says it expects to end the year with 11.6 million to 12 million subscribers, up from its earlier forecast of 11.2 million to 11.8 million.

The company also raised its profit outlook to $1.65 to $1.82 per share from a range of $1.56 to $1.72 per share for the year. Analysts are expecting earnings of $1.72 per share.

Netflix also raised the low end of its revenue guidance range for the year. The company is now forecasting sales between f $1.65 billion to $1.67 billion, bracketing Wall Street’s expectations of $1.66 billion.

Shares fell 46 cents, or 1 percent, in after-hours trading after the release of results Thursday. The stock had closed Thursday up $1.18, or 2.6 percent, at $46.46. Netflix’s shares are up more than rose 12 percent since the beginning of July.

Woo said the stock, which is just a few dollars off of its 52-week high, was “priced to perfection.”

“I still think it’s going to open up positively” on Friday morning, he added.

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