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.
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2009 Guidance
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Now
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Three Months Ago
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Subscribers
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12 million - 12.3 million
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11.6 million - 12 million
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Revenue
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$1.666 billion - $1.672 billion
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$1.65 billion - $1.67 billion
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EPS
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$1.82 - $1.90
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$1.65 - $1.82
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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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