Online video veteran Netflix (Nasdaq: NFLX) reports fourth-quarter and full-year 2007 earnings Wednesday night. First, you can warm up with the numbers and the story from last quarter. Then you grab a favorite snack from the pantry, pour the tastiest libation you own, and settle down in front of that big-screen home theater to see how the story plays out.

What Fools say:
Here's how Netflix's CAPS scoring rates against some of its peers and competitors:

Market Cap
(millions)

Trailing
P/E Ratio

CAPS
Rating (out of 5) 

Apple
(Nasdaq: AAPL)

$136,690

39.8

***

Comcast
 (Nasdaq: CMCSA)

$51,140

22.1

**

Amazon.com
 (Nasdaq: AMZN)

$31,770

88.4

**

Netflix

$1,430

23.1

**

Blockbuster
 (NYSE: BBI)

$587

NM

*

Data from Yahoo! Finance and Motley Fool CAPS as of Jan. 22.

There's a lively debate raging between the bulls and the bears in Netflix CAPS commentaries. One All-Star bear says that Netflix "is a really good company. That is why I will feel bad to see it go." The competition is just getting too powerful these days, the bears think, and DVD-by-mail rentals are headed for the great business-model scrapyard in the sky.

On the other side of the argument, a CAPS All-Star and fellow Fool notes that Sony (NYSE: SNE) and Toshiba wouldn't fight to the death over Blu-ray vs. HD DVD formats if they thought the discs would be obsolete in five years -- and Netflix ships both kinds to its subscribers. Others point to the all-you-can-eat streaming downloads, soon to be coupled with set-top boxes from a variety of hardware partners.

What management says:
The last quarter exceeded the expectations of the management team, and CEO Reed Hastings vowed to "remain focused on making our core service even better and growing our online DVD rental business, while continuing to invest in our Internet delivery initiatives."

What management does:
Netflix remains a profitable growth story, while archrival Blockbuster seems forced to choose between growth or profits in the by-mail rental space. Netflix's drooping earnings growth trajectory should pick up speed once again with the Total Access price-and-service wars long gone by the time the holiday season rolled around.

Margins

9/30/2006

12/31/2006

3/31/2007

6/30/2007

9/30/2007

Gross

36.6%

37.1%

37.5%

37%

36%

Operating

5.9%

6.5%

6.6%

6.8%

7%

Net

7.9%

4.9%

5.1%

5.5%

5.6%

FCF/Revenue

21.2%

22.1%

21%

21%

20.9%


Growth (YOY) 

9/30/2006

12/31/2006

3/31/2007

6/30/2007

9/30/2007

Revenue

45.4%

46.1%

43%

37.7%

29.3%

Earnings

671.8%

16.8%

(1.3%)

(5.3%)

(8.8%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
People have been comparing a Netflix investment to robbing a doughnut shop at lunchtime -- you just know there will be too much trouble ahead. Even my Foolish compadre Rick Munarriz, who owns the stock and likes the company, thinks that the glory days of mail-delivered-DVD subscriber growth are over.

Phfft! Baloney!

Yes, the combined subscriber base of Netflix and Blockbuster Online actually declined last quarter, for the first time ever. But I'm convinced that it was simply the least desirable customers -- the ones who want tons of movies at almost no cost -- who left the Total Access refuge when Blockbuster adjusted its pricing plans to the reality we live in. My projections point to about 3.3 million Total Access subscribers this time vs. 7.5 million for Netflix. That would be about a 7% boost over the previous quarter, and chances are that I'm being too conservative.

On the downside, Blockbuster has told us that it won't divulge subscriber counts anymore, but the Netflix prediction still stands. It's back to profitable business as usual in Los Gatos.

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