Netflix (NASDAQ:NFLX) shares jumped today after the company said it has 84% more subscribers than it had this time last year. Regardless of the inevitable valuation discussions on Netflix, one thing's clear: The DVD-rental company continues to successfully court new subscribers and shake up the traditional movie-rental industry. However, today's bump in share price proves folks are a little nutty over Netflix.
The company announced that it has 1.93 million subscribers as of the end of the current quarter. Not only is that an 84% increase over last year's number, but it's a 30% boost from last quarter. Advertising, including a television campaign, and low subscriber loss contributed to the increased numbers.
Today's press announcement got investors fired up, and while the news was nice to hear, it is not an improved outlook. When we looked at Netflix's mid-quarter update, the company predicted it would have 1.86 million to 1.94 million subscribers, so today, it basically said it will meet the high end of that expectation. At that time, Netflix also said it was going to spend money (and widen its quarterly loss) to launch marketing campaigns to keep attracting new blood.
We all know by now that Netflix's success has soured the outlook for traditional rental outfits like Viacom's (NYSE:VIA) Blockbuster (NYSE:BBI) and Hollywood Entertainment (NASDAQ:HLYW), the latter of which recently said it is going private.
Low subscriber churn is, of course, a good thing (the idea being, despite that all-you-can-eat DVD rental model, it's pretty darn hard to simply run out of movies you want to watch), but it's rumored that other technological changes, like digital video recorders and video on demand, could sully the outlook for Netflix.
Indeed, some of the stalwart TiVo (NASDAQ:TIVO) fans on the TiVo discussion board here at the Fool have discussed the idea that a more ubiquitous TiVo could pose a threat to Netflix. Since TiVo trolls the airwaves for favorite shows and movies, users have ample entertainment saved up, and then some. (Tivo currently is a Motley Fool Stock Advisor recommendation; Netflix formerly was one.)
But, as was discussed here at the Fool just days ago, Netflix makes an interesting story stock that, so far, has shown a lot of exciting success. At one point today, shares were up 6%, though they've calmed down since. Nonetheless, it seemed a lot of exuberance for something we already expected.
If anything, today's announcement offered up justification for the marketing spending that contributed to the upcoming quarterly loss some of us have been bracing ourselves for.
Now what?
David Gardner picked both Tivo and Netflix for Motley Fool Stock Advisor. Try Stock Advisor to find out why he dropped Netflix. Do you think Netflix is poised for continued growth? Talk about its chances on the Netflix discussion board here at Fool.com.
Alyce Lomax does not own shares of any companies mentioned. She imagines either TiVo or Netflix would make her addiction to horror movies a whole lot worse.
