Netflix sales jump with streaming
DIGITAL: Subscribers increased 28% to 11.1 million
By Danny King -- Video Business, 10/22/2009
OCT. 22 | DIGITAL: Netflix's sales jumped 24% as a higher percentage of its broadening subscriber base took advantage of the company's videostreaming service. The company also said today that it expected streaming use to accelerate on a yet-to-be disclosed agreement with a consumer electronics company this quarter as well as on overseas operations starting next year.
The No. 1 U.S. DVD-rental service via mail widened its subscriber base from a year earlier by 28% to 11.1 million. About 42% of its customers videostreamed at least part of either a television show or movie during the third quarter, up from 22% a year earlier, Netflix CEO Reed Hastings said on a conference call with analysts today.
Netflix has been increasing sales and subscribers by augmenting its DVD-by-mail delivery with a videostreaming service that includes both a growing number of digital titles -- most recently estimated at about 17,000 -- as well as a broader base of electronics components that can play them on televisions. Earlier this week, the company reached an agreement to make its digital titles playable on Best Buy brand Insignia Blu-ray Disc players.
Such streaming use will grow further after Netflix completes an agreement with a yet-to-be disclosed consumer-electronics maker that Hastings said has a "material" user base. Additionally, Netflix plans to debut its videostreaming service to customers outside of the U.S. during the second half of 2010, though it has no plans to ship DVDs within the countries, which the company also didn't disclose.
"We continue to invest heavily on streaming content," Hastings said on the call today. "Our DVD proposition is very strong and growing, and our streaming is adding to that."
Indeed, Netflix, which says DVD shipments will continue to grow for "several" more years, is looking to boost profitability from its by-mail operations by investing $40 million in an automation system that will streamline DVD returns, disc cleaning and repackaging, Hastings said. The company, which recently completed its rollout of Saturday operations for all 58 of its distribution centers, is hoping that DVD costs decline further if movie studios follow through on their intention to establish a later release window for DVDs earmarked for the rental market, similar to what some of the studios have done with kiosk operators such as Redbox.
"If we can agree on low enough pricing for delayed rentals, it could potentially increase profits for everyone," Hastings said on the call.
Netflix's third-quarter net income rose 48% to $30.1 million, or 52¢ a share, up from $20.4 million, or 33¢, a year earlier, as sales rose 24% to $423.1 million, Netflix said in a statement today. The company was expected to earn 46¢ a share on $419.9 million in sales, the average analyst estimate in a Thomson Reuters survey, and in July, forecast earnings of about 43¢ a share on about $419 million in sales.
Netflix today boosted its full-year earnings-per-share forecast by about 7.5% to about $1.86 and increased its sales estimate slightly to about $1.69 billion. The company forecast its year-end subscriber base at about 12.1 million, up from its prior forecast of about 11.8 million.
Netflix shares fell more than 3% at about 8:15 p.m. Eastern time in after-hours trading. The stock has surged 20% since early September, when Netflix chief financial officer Barry McCarthy, speaking at a New York conference, said the company's third-quarter results wouldn't “disappoint” investors.
