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Smile, You're a Netflix Investor

Shares of Netflix (Nasdaq: NFLX  ) hit a fresh 52-week high this morning after the company raised its guidance for 2008. Even if the rest of your stocks feel sweded these days, there's still a spark in the DVD rental specialist.

Netflix now expects to close the year with 8.9 million to 9.5 million subscribers. That is well ahead of both the nearly 7.5 million members it closed 2007 with, as well as its original guidance that planted the customer acquisition flag at 8.4 million to 8.9 million movie buffs.

Hold that confetti, though. The new revenue guidance of $1.345 billion to $1.385 billion implies a top line spurt at just half of its subscriber growth numbers. Netflix is also keeping its profitability guidance -- between $75 million and $83 million -- unchanged. The dot-com darling is boosting its earnings-per-share guidance to a range of $1.18 and $1.30, but that is only the handiwork of the company's share repurchase efforts.

So what's going on? The staggered guidance would imply that it expects most new subs to punch in toward the latter half of the year, but that's not the case here. Netflix is also bumping up its first-quarter member targets. The more likely explanation is that the company expects a lot of the new blood to choose the low-priced entry level plans or for some of its existing members to downgrade to cheaper plans.

Don't freak out over that. Netflix turns healthy profits on all of its plans. The lowest-priced plan is actually even more predictably profitable because the allotted usage is capped. For $4.99 a month, thrifty celluloid fans get no more than two DVDs a month.

Rival Blockbuster (NYSE: BBI  ) also has a dirt cheap, capped plan for its mail-delivered Total Access service. Why are these entry-level plans suddenly so popular? Recession much?

Yes, even companies that offer monthly subscription plans are aware that the drying up of the discretionary dollar will have an impact on them. XM (Nasdaq: XMSR  ) and Sirius (Nasdaq: SIRI  ) may have proposed a half-priced subscription plan to appease regulators, but it also happens to be the right approach at the right time in an economic lull.

Netflix will do just fine in a recession. Mail-delivered discs provide economical entertainment as they provide gas price relief through the convenience of home delivery.

So are you still holding on to that confetti? Cool. Go ahead. Toss it. Netflix has earned it.

For more red-envelope Foolishness:

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Related Tickers

10/21/2016 4:00 PM
NFLX $127.50 Up +4.15 +3.36%
Netflix CAPS Rating: ***
BLOKA.DL $0.19 Up +0.01 +0.00%
Blockbuster, Inc. CAPS Rating: *
SIRI $4.15 Up +0.02 +0.48%
Sirius XM Radio CAPS Rating: **
XMSR.DL $0.00 Down +0.00%
XM Satellite Radio CAPS Rating: No stars