289,000 Reasons to Love Netflix

No one is applauding the recession, but at least Netflix (Nasdaq: NFLX  ) can't complain that the souring economy is turning us into thrifty couch potatoes.

The DVD-rental specialist closed out its latest quarter with nearly 10.6 million subscribers, or 289,000 more than it had at the end of March. Revenue soared 21% to $408.5 million. Earnings checked in at $0.54 a share, comfortably ahead of both the $0.42 profit it rang up a year ago and the $0.50 target that analysts were banking on.

Churn inched higher during the quarter, but subscriber acquisition costs continue to plunge. But that's a fair trade-off. The unsure economy may find movie buffs stopping and restarting their Netflix subscriptions more often, but it's also getting cheaper for Netflix to smoke out new leads.

The delicious reward at the end of the three-month meal is that free cash flow more than doubled to $26.3 million.

Forging ahead against the fierce headwinds has Netflix bumping up its guidance for all of 2009.

Metric

New Guidance

Previous Guidance

Revenue

$1.65-$1.67 billion

$1.63-$1.67 billion

Subscribers

11.6-12 million

11.2-11.8 million

EPS

$1.65-$1.82

$1.56-$1.72

What's the secret? It's not just the flicks, because Wall Street sees real-world leader Blockbuster (NYSE: BBI  ) posting a quarterly loss next week. And it's not necessarily digital delivery, because several dot-com heavyweights aren't making a dent here.

Netflix simply has the best model, with a sweet perceived value. Paying $17 a month for unlimited DVD rentals (with no more than three out at a time) and bottomless streams from its growing digital library is a better deal than a single night out at the movies. Apple (Nasdaq: AAPL  ) and Amazon.com (Nasdaq: AMZN  ) are kidding themselves with piecemeal digital offerings, even if that's the model privy to the hottest digital titles.

This explains why hardware gadget makers such as Microsoft (Nasdaq: MSFT  ) and TiVo (Nasdaq: TIVO  ) are making sure their boxes give couch potatoes access to Netflix digital streams, even as they also broker deals with the a la carte digital specialists.

Unfortunately for anyone dreaming of beating Netflix at its own game, every quarter finds it padding its insurmountable lead. There are now 289,000 more reasons why Netflix can't be easily vanquished than there were three months ago.  

If we go by Netflix's new guidance, at least a million more accounts will be added to the service's rolls in the latter half of the year. Who says Netflix doesn't have a mighty moat?

Other headlines to rock out to:

Start investing today – just $7 per trade with Scottrade. Or find the broker that's right for you.

Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor picks. 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 of TiVo and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (15)

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.

Be the first one to comment on this article.

DocumentId: 949692, ~/Articles/ArticleHandler.aspx, 4/17/2014 8:45:31 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement