2 Billion Reasons to Believe in Netflix

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Don't bury Netflix (Nasdaq: NFLX  ) . It's not dead yet.

Shares of the video-streaming giant soared 11% yesterday, after Netflix revealed that it served up a whopping 2 billion hours of video to its more than 20 million streaming customers during the holiday quarter.

This is significant for many different reasons.

For starters, there's the sheer size of that number. Pandora (NYSE: P  ) served up 2.1 billion hours of music streams in the previous quarter, but that's largely a free ad-based service. Netflix streaming is going out only to premium subscribers.

No one is going to come near that number, and CEO Reed Hastings knows it. (Nasdaq: AMZN  ) is quickly building up the streaming smorgasbord it offers online subscribers at no extra cost, but it doesn't seem to be gaining material traction. Either way, the same Amazon that has been tightlipped about how many Kindles it has actually sold in the past isn't going to publish a streaming consumption figure -- even if it wasn't embarrassing.

There's also the significance of the time frame. Remember back in September, when folks on dual plans saw their monthly bills spike as much as 60%? Netflix suffered net cancellations of 800,000 subscribers for that quarter. It's more than likely that the fourth quarter will have more people bolting than joining, but putting out this meaty data nugget covering the months of October, November, and December clearly shows that folks are still sticking around.

Sure, it's problematic to see Netflix refer to its user base as "more than 20 million streaming members globally" when it had 22.9 million global streaming subscribers at the end of the third quarter. However, Netflix has been using that round figure since mid-November.

Then let's work with that streaming audience. Two billion hours divided by "more than 20 million" members breaks out to less than 100 hours per streaming customer during the entire quarter. That's more than I thought, and I'm guessing that it's probably more than you thought, too. Folks are hooked on Netflix's digital service, and consuming an average of roughly 30 hours of content for $7.99 a month is a pretty darn good deal.

"Hastings needs to come out of the gate strong in 2012," was my fifth and final point last week in singling out the things that Netflix needs to do to get back on track this year.

Whipping out this announcement ahead of the second trading day of the year, waiting for last year's tax-loss sellers to move on last week, is brilliant.  

Motley Fool's top stock for 2012 isn't Netflix. If you want to find out what it is, a special report reveals all. It's entirely free, but will only be available for a limited time, so check it out now.

The Motley Fool owns shares of Motley Fool newsletter services have recommended buying shares of and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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  • Report this Comment On January 05, 2012, at 11:04 AM, KMSTAR wrote:

    If you doubt Netflix @ 7.99 per month look to the cable companies that charge $200 per month. I have been specifically told by friends that they don't have cable TV because alternatives like Netflix, Hulu, etc are available and they need to save money.

    I purchased Netflix on the first trading day of the year.

  • Report this Comment On January 05, 2012, at 6:49 PM, FOOLTOCROSS wrote:

    So you're saying Netflix is a good purchase!? I concur!

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