Netflix Streaming Drives Earnings Above Estimates

Written by Ryan Lawler

Monday, January 26. 2009 at 07:20 PM EST 1 comment

Digg   Del.icio.us   Reddit   Email This

no ratings

• Login to Rate

With its fourth-quarter results coming in above analyst forecasts, Netflix Inc. may finally be seeing some serious payoff from its decision to offer online streaming as part of its subscription service.

Driven by increased demand for its "Watch Instantly" streaming service, the DVD rental firm reported strong subscriber additions during the fourth quarter, increasing its total subscriber base to 9.4 million by the end of the quarter.

The subscriber number came as a bit of a surprise, as Netflix lowered its forecast during its third-quarter earnings call. The company had revised its guidance to a range of 8.95 million subscribers to 9.15 million subscribers, from a previous forecast of 8.95 million to 9.25 million subscribers.

Netflix reported earnings of $22.7 million, or 38 cents a share, on revenues of $359.6 million during the fourth quarter 2008. That compared with earnings of $15.7 million, or 23 cents a share, on sales of $302.3 million during the previous year's fourth quarter. Non-GAAP net income was $24.6 million, or 41 cents a share, compared with $17.7 million, or 26 cents a share, during the year-ago period.

Driven by an influx of new subscribers, Netflix beat consensus analyst expectations for its quarterly revenue and earnings numbers. Analysts on average expected the company to report sales of $354 million and earnings of 34 cents per share during the quarter.

The strong earnings results were also helped by much lower subscriber acquistion costs. Netflix reported that fourth-quarter subscriber acquistion cost was $26.67 per gross subscriber add, compared with $34.58 during the previous year's fourth quarter.

Netflix attributed the strong customer growth to increased adoption of Watch Instantly, as well as the service's availability across a growing number of devices. Last year, Netflix made the streaming service available on Blu-ray players from Samsung and LG, the standalone Roku Netflix Player, and on Microsoft Corp. (Nasdaq: MSFT)'s Xbox 360.

Despite difficult macroeconomic conditions, Netflix sees the subscriber momentum continuing, and has forecast first-quarter total subscribers to be in a range of 10.1 million to 10.3 million.

For the first quarter, Netflix provided revenue guidance of between $387 million and $393 million, which is well above Wall Street's consensus forecast of $372 million. The company called for first-quarter earnings of 25 cents to 33 cents per share, roughly in line with analysts' consensus forecast of 29 cents a share.

However, due to decreased visibility as the year goes on, Netflix provided conservative guidance for the full year 2009. The company said it expects to end the year with 10.6 million to 11.3 million subscribers, sales between $1.58 billion and $1.635 billion, and earnings per share between $1.43 and $1.59.