Recs

11

Netflix Always Wins

By Rick Aristotle Munarriz | More Articles
October 23, 2009 | Comments (14)

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How does a leisure company grow during a cash-strapped recession? Give customers what they want. Look no further than Netflix (Nasdaq: NFLX  ) for proof. The DVD rental specialist delivered yet another quarter of better-than-expected results.

Revenue climbed 24% to $423.1 million. Earnings grew even faster, with Netflix's third-quarter profit clocking in at $0.52 a share, well ahead of last year's $0.33-a-share showing. Wall Street was only banking on net income of $0.45 a share. There were 11.1 million subscribers at the end of last month, 28% more than the audience Netflix commanded a year ago.

The secret to Netflix's success lies in making its service too addictive to quit. That's a tall order, and the company's churn seems to belie its success there. Its monthly churn rate of 4.4% remains within its historical range, but it's two to three times higher the churn of other monthly entertainment services, including Sirius XM Radio (Nasdaq: SIRI  ) , TiVo (Nasdaq: TIVO  ) , and Dish Network (Nasdaq: DISH  ) .

The distinction here is that those services often require either a three-figure investment in hardware, or a long-term commitment in order to receive subsidized hardware. Cancellations aren't an easy click away. Thankfully, reactivations and new member acquisitions are just as easy -- and cheap -- for Netflix.

With plans including unlimited DVD rentals and online streams for as little as $8.99 a month, Netflix offers customers dynamite value. Heck, $8.99 is often less than a single movie ticket costs these days.

The unlimited streaming also helps Netflix compete against Apple (Nasdaq: AAPL  ) , Amazon.com (Nasdaq: AMZN  ) , and Blockbuster (NYSE: BBI  ) in their efforts to sell digital flicks a la carte.

The improving margins prove that Netflix's model math works. They're also leading this friend to couch potatoes everywhere to raise its guidance yet again.

2009 Guidance

Now

Three Months Ago

Subscribers

12 million - 12.3 million

11.6 million - 12 million

Revenue

$1.666 billion - $1.672 billion

$1.65 billion - $1.67 billion

EPS

$1.82 - $1.90

$1.65 - $1.82

Let's have some fun. How many subscribers do you think Netflix will have by the end of the year? Take a shot in the comment box below, and I'll come back in late January and crown the victor.

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Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. He also owns shares in TiVo. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy recommends The I.T. Crowd to Watch Instantly users.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 23, 2009, at 2:54 PM, Melaschasm wrote:

    12.4 to 12.6 (or specifically 12.5 million)

  • Report this Comment On October 23, 2009, at 3:07 PM, SIRIDoom wrote:

    SIRI considering stock holder value. 59 cents and saturation how much?

    Delisting from NASDAQ or rev-split by March? Removed from all the indexes for low trade value? Not looking so good...

  • Report this Comment On October 23, 2009, at 5:28 PM, bigboyfool wrote:

    13.6 million by year end, and growing faster in 2010

  • Report this Comment On October 23, 2009, at 7:11 PM, mjl75 wrote:

    12,850,200

  • Report this Comment On October 23, 2009, at 9:16 PM, bballinconadon wrote:

    13.1 million

  • Report this Comment On October 23, 2009, at 10:22 PM, JudasTouch wrote:

    12.4M by the end of the year.

  • Report this Comment On October 24, 2009, at 11:18 AM, feldmail wrote:

    13, 049,077 subsribers.

  • Report this Comment On October 24, 2009, at 12:30 PM, dedmunds wrote:

    JUST IN!!!

    SIRI CEO NO REVERSE SPLIT!!!

    BUY NOW WHILE THE STOCK IS LOW!!!

  • Report this Comment On October 24, 2009, at 1:29 PM, ddramsterdam wrote:

    11,750,000 by 31-12-2009

  • Report this Comment On October 24, 2009, at 2:51 PM, dedmunds wrote:

    13,7M by end of the year and growing in 2010

  • Report this Comment On October 24, 2009, at 4:47 PM, 67vair wrote:

    Siridope, delist yourself from these posts please!!!

  • Report this Comment On October 27, 2009, at 10:03 AM, nitedawg wrote:

    13.3 million by YE 2009

  • Report this Comment On October 27, 2009, at 10:28 AM, choppaz4life wrote:

    12.75 m by year end. Will continue to grow thru 2010.

  • Report this Comment On October 27, 2009, at 11:01 AM, GreggJames wrote:

    First, I'm not short or long in NetFlix, I'm a customer. I signed up for Netflix a friend told me about streaming shows and movies through the Roku box.

    I got rid of all my cable premium channels, which were costing me $49.95 per month and pay Netflix $8.99 per month. When I hooked up my Roku box I found 17,000 movie titles and docs to choose from and got hooked on NetFlix completely.

    Last week, I visited my local Barnes and Nobles and found that the majority of titles they offer I can now get on NetFlix (unlimited). I use to rent from Blockbuster but, when they changed their way of doing business, I closed my account.

    Quite frankly, I don't know how BB, the premium cable channels or stores like Barnes and Nobles (offeing dvd's) will survive against a company like NetFlix. I don't believe NetFlix has any competition in the marketplace and wished I had been long in their stock:-)

    OK, the Roku box cost me $99.95 to buy, but I own it and in fact, bought a second box a few days for my bedroom television as well. I can still have out one movie at a time with NetFlix with no late fees so, what's NOT to love about this company?

    Here's the only downside I see...

    NetFlix gets gobbled up by a larger company and the monthly fees increase dramatically or, Barnes and Noble strarts giving customers a deal where they can get as many dvd's as they want per month for $8.99.

    Other than the above, I can only see great things for this company and hope that many millions more sign up in the coming month's.

    I will say one thing, I heard about the unlimited streaming offers through a friend, NOT through a NetFlix ad. I NetFlix has to be more clear as to what they offer and FOCUS those ads on value for dollar.

    Thanks for Reading

    Gregg

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