Netflix will meet Q3 sales, earnings forecast
PHYSICAL: Ex-subscribers return for digital offering, says CFO
By Danny King -- Video Business, 9/9/2009
SEPT. 9 | PHYSICAL: Netflix will boost third-quarter earnings and sales by at least 20% from a year earlier, marking at least the fourth consecutive quarter for such gains, as the largest U.S. movie-rental service via mail continues to improve its financial results by expanding its video-streaming service, the company’s financial chief said today.
The company is able to maintain its profit margins while boosting investment in its streaming service because Netflix’s widening customer base allows sales growth to keep pace with its increasing digital-content investment, Netflix chief financial officer Barry McCarthy said at the Citigroup Investment Research Global Technology conference in New York today. McCarthy added that many of Netflix’s new subscribers are previous customers lured back by the video-streaming option.
Netflix in July forecast third-quarter earnings of about $25 million on sales of about $419 million, both representing a 23% increase from year-earlier results. The company’s second-quarter earnings jumped 22% from a year earlier after Netflix boosted its sales and expanded its subscriber base by 21% and 26%, respectively.
“I don’t foresee in any of the scenarios we run related to the business that is going to disappoint investors,” McCarthy said today. “We’re pretty optimistic of the current trajectory of the business based on the success we’re having.”
Netflix, which is set to release third-quarter earnings next month, has been augmenting its DVD-by-mail service by expanding both the number of its digital titles and the number of electronic components that can play them on TVs. About a third of new subscribers to Netflix, which offers more than 12,000 of its approximately 100,000 titles in digital form, are previous customers who had canceled their subscriptions but were lured back largely by the expanded digital offering, according to McCarthy.
The company’s financial chief also characterized videogame platforms as “ground zero” for hardware devices that will most effectively increase the number of Netflix subscribers who stream video titles. While Netflix has an exclusive agreement that dictates Microsoft’s Xbox 360 as the only videogame device set up to stream Netflix’s digital titles, the company would consider similar agreements with companies such as Nintendo and Sony for their Wii and PlayStation 3 platforms, respectively, McCarthy said.
