Todays News: Netflix Profit Up 88 Percent, But Shares Fall 5 Percent

By Sam Gustin
April 25, 2011 |
6:54 pm |
Categories: Video

Netflix, the streaming-video and DVD-rental-by-mail giant, said that its profit soared 88 percent in the first quarter as it added 3.6 million subscribers globally. But the company’s shares were battered in after-hours trading, falling 5 percent after the company projected that its profits next quarter wouldn’t likely be as high as Wall Street traders hoped they would be.

The seemingly odd timing of the sell-off may also be due to investors trying to reap some profits from a stock that has risen 40 percent this year.

For the first quarter, Netflix said it earned $1.11 per share on revenue of $718.6 million, beating the Street’s expectation of $1.08 a share on revenue of $704 million. The company said it made profit of $60.2 million, nearly double the $32.3 million it earned one year ago.

Despite the strong performance, Netflix’s earnings guidance for next quarter disappointed investors, prompting them to shed the stock. Netflix projected the high end of its second-quarter per-share earnings at $1.15, shy of the Street’s consensus estimate of $1.19.

In the run-up to Netflix’s earnings report, there was quite a bit of chatter about whether Netflix would overtake cable giant Comcast to become the largest subscription-entertainment business in the United States by absolute number of subscribers.

Well, Netflix came close, but didn’t quite pull it off, missing by a whopping 5,000 subscribers. (Recount! Disclosure: I am a Netflix subscriber.) Netflix reported 22.797 million U.S. subscribers, slightly lower than the 22.802 million U.S. video subscribers Comcast reported at the end of 2010. (Netflix’s global subscriber number, 23.6 million, did top Comcast.)

Of course, Comcast will almost certainly have shed some video subscribers when its reports first quarter earnings on May 4, so Netflix will almost surely pass it domestically then. (Netflix projects 24 million video subscribers by the end of the second quarter.) On the other hand, Comcast’s high-speed internet business is adding subscribers — more than 1 million last year — and the broadband subscriber gains are off-setting the video-subscriber losses, at least for now.

But even if Netflix had actually surpassed Comcast in absolute U.S. video-subscriber numbers Monday, it’s important to remember the context. Netflix charges its customers $8 per month for the basic, unlimited-streaming package. Comcast’s subscribers pay $50, $60, $70 — and more — for their monthly cable-video service.

Throw in broadband internet and phone service, and the comparison starts to look a little silly.

That’s why Comcast made $15 billion profit on revenue of nearly $40 billion last year. Netflix, meanwhile made $320 million profit on $2.1 billion in revenue last year. Netflix’s market capitalization is $13.3 billion. Comcast, which now controls NBC Universal, is worth $70 billion.

True, Netflix is growing far faster than Comcast, a corporate behemoth, but the streaming upstart faces an array of competitive threats aiming for it in the near future, from services like Hulu Plus, Amazon Prime and the service Dish Network is reportedly preparing under the Blockbuster brand.

But, Netflix says, its toughest competition may actually come from “multichannel video-programming distributors” (MVPD), which is fancy talk for your cable company, like Comcast or Time Warner Cable; satellite provider, like DirectTV or Dish Network; or wireline video provider, like Verizon Fios.

“Our biggest competitor over time may be another service with a similar model to Netflix, such as Hulu Plus, or it may be free on-demand internet video as a part of a consumer?s MVPD package, namely TV Everywhere,” Netflix said in a statement.

TV Everywhere represents the cable industry’s ambitious answer to the Hulu model, and is designed to give existing subscribers access to content across platforms, as well as on-demand access on cable boxes. Comcast announced a deal in February with Turner Broadcasting to stream hundreds of hours online to Comcast subscribers, according to PaidContent, which said that CNN is likely the first channel to go live on the web.

“This free bundling of a subset of our functionality within a larger subscription service is a classic way for an incumbent to leverage its strength,” Netflix said. “While TV Everywhere is not a strong offering today, it is likely to become much better over the coming years.”

And then of course, there is the little matter of Comcast’s recent purchase of NBC Universal, a Hulu partner, and its vast stable of entertainment assets. It’s unclear how that drama will play out.

Interestingly, perhaps because it fears the wrath of the broadband giants, Netflix downplayed the so-called cord-cutting phenomenon.

“The data shows that Netflix is a supplemental channel to MVPD,” Netflix said in the statement. “While Netflix is likely to show huge growth again this year, we think MVPD cord-cutting will be minimal to nonexistent. We hear some stories from customers who have Netflix and no MVPD service, but these are generally people who rely on free broadcast TV (which is now in HD) and supplement with Netflix, rather than switching from MVPD to online.”

Bottom line: Netflix is doing a very impressive job at disrupting a huge, oligopolistic market. But the streaming upstart still has long way to go before it can lord it over Comcast — at least where it counts: cold, hard, currency.

Todays News

Tuesday, April 26, 2011

Netflix Profit Up 88 Percent, But Shares Fall 5 Percent

Netflix Profit Up 88 Percent, But Shares Fall 5 Percent

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