If folks are ready to abandon DVD rentals by mail in favor of the flood of movie-downloading services, I wish them good luck making that argument after the blowout quarter from Netflix
In its quarter that ended in September, revenues soared 48% higher to hit $256 million as earnings per share improved to $0.18 a share after an $0.11 showing a year earlier. Back out stock-based compensation, and earnings would have grown from $0.16 a share to $0.21 a share. Analysts got smoked, expecting Netflix to earn just $0.12 a share for the period.
The company closed out the period with nearly 5.7 million subscribers to its mail-order service, where customers keep online queues to select DVDs that are mailed from regional distribution centers, with Netflix covering the shipping both ways.
Even though Amazon.com
This doesn't mean that Hastings dismisses the popularity of Internet delivery. In three months, Netflix plans on making its plans in that area formally known. He just sees the format evolving over the next 10 years and expects to capitalize on it, rather than be decapitated by it.
The only real threat the company sees in the near term is the battle for high-definition players. With HD-DVD and Blu-ray creating rifts between manufacturers and movie studios, consumers are unlikely to make significant investments in new players until a format emerges as the high-definition platform of choice.
Netflix shares shot up 14% in after-hours trading on the news. Even cynics had to applaud the tripling of free cash flow and improvement in churn. If one wished to quibble, one could point to an increase in subscriber acquisition costs, but there wouldn't be much else to fault the company with.
The future is only going to get better; the company projects current-quarter results to come in at the high end of its original range as it closes out the period with 6.3 million subscribers. That is more than three times the target that its nearest competitor -- Blockbuster
Netflix isn't afraid of the future. Investors shouldn't be all that fearful, either.
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Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. T he Fool has a disclosure policy.