Netflix Q2 profit rises 22%

PHYSICAL: Subscriber base jumps, sales lag analyst estimates

By Danny King -- Video Business, 7/23/2009

JULY 23 | PHYSICAL: Netflix’s second-quarter profit rose 22% as the No. 1 U.S. movie-rental service via mail used its video-streaming offering to grow its subscriber base to the high end of its April forecast. Shares of the company fell slightly after hours as the company lagged analysts’ revenue estimates.

Net income was $32.4 million, or 54¢ a share, from $26.6 million, or 42¢, a year earlier, as sales rose 21% to $408.5 million, Netflix said in a statement today. The company, which widened its subscriber base from a year earlier by 26% to 10.6 million, was expected to earn 50¢ a share on $409.7 million in sales, the average analyst estimate in a Thomson Reuters survey.

Netflix has been augmenting its by-mail service with its video-streaming product and has signed agreements to make its digital titles playable on a broader number of electronic components. The company earlier this month said its digital titles will be playable on Sony Bravia high-definition TVs. Netflix reached similar agreements for Samsung home theater systems, and LG Electronics TVs and Blu-ray players during the quarter.

“We're on track for a record 2009,” Netflix CEO Reed Hastings said on a conference call with analysts today. "Consumers are responding strongly to the Netflix proposition."

Netflix beat its April earnings forecast of as much as 53¢ a share, and its second-quarter sales and subscriber total were at the high end of the April forecasts. The company’s sales trailed analyst estimates, though, giving credence to some financial analysts’ concerns that the company’s decision to not charge subscribers for video-streamed content is hurting revenue.

Still, Netflix today boosted its full-year earnings-per-share forecast to a midpoint of about $1.73 a share from a midpoint of $1.64 a share and increased its sales forecast slightly to about $1.66 billion. The company forecast its year-end subscriber base at about 11.8 million, up from its prior forecast of about 11.5 million.

Hastings maintained that the company's shipments of DVD rentals won't peak for at least another four years, adding that the relatively low inventory of digital titles -- about 12,000 of Netflix's 100,000 titles are available in video-streaming form -- will prevent the company from offering a streaming-only subscription option anytime soon. Netflix had added Saturday shipping to about half of its 58 U.S. distribution centers, with plans to add a sixth weekly shipping day to the other half by as soon as the fourth quarter, Hastings said.

Still, the company, which spends about half of its cost of goods sold on postal shipments, is looking to cut that number down to a third as a higher percentage of its subscribers switch to streaming, Hastings said today.

Netflix shares fell about a half percent at about 8 p.m. Eastern time in after-hours trading.