This is why the mailers are red
The sky isn't falling at Netflix (Nasdaq: NFLX), but it's certainly not the same shiny hue that it used to be after this week's uninspiring quarterly report. The DVD-rental specialist simply met Mr. Market's expectations by posting a 36% improvement in profitability on a pedestrian 7% advance in revenue.
Lower prices have helped attract new subscribers, but the company has raised its year-end subscriber target twice this year while keeping its net income guidance intact. It's unclear who will stomach the company's rising costs in the near term, given next month's postal rate increase and the greater demand for pricier Blu-ray discs, though plans to pass the higher overhead on to Blu-ray renters later this year may bump against resistance.
With more than 8.2 million subscribers on board -- and churn levels down to historical lows -- Netflix is clearly doing a lot of things right. The value of a Netflix subscription is all the more compelling in an unsure future, now that a night out to the movies -- or even a trip out to the video store -- faces softness in the face of less discretionary income and higher gasoline prices.
However, Netflix shares probably shouldn't have been tickling all-time highs one trading day before its quarterly report. Consumer-driven companies will be tested until we see clear signs that the economy is back on track.
The sky isn't falling on that front, either, though it certainly seems a little lower today.
Briefly in the news
Here's a quick look at some of the other stories that shaped our week.
- It's nice to know that Apple (Nasdaq: AAPL) doesn't rise and fall on the fate of the iPod anymore. Apple delivered another blowout quarter, despite a mere 1% uptick in iPod unit sales. The drivers were the bigger-ticket computers (up 51% in unit volume) and iPhones (which weren't even around a year ago). Apple has now topped analyst expectations in each of the past 21 quarters. It kind of makes you wonder why other companies aren't inquiring about the possibility of cloning Steve Jobs.
- The Microhoo saga heads into the weekend with more of a whimper than a bang. Yahoo!'s (Nasdaq: YHOO) earnings report on Tuesday was supposed to set the stage for what would happen next. A great report and Microsoft (Nasdaq: MSFT) would have had to raise its bid. A bad report and Microsoft would have been justified in walking away or lowering its offer. Instead, Yahoo! split the difference with a truly mixed showing. The top line inched slightly higher, but the bottom line didn't rise. Microsoft may have changed the rules of the game by the time you read this. It was supposed to pull its offer from the table this weekend. If you haven't seen any fireworks yet, step outside. They're coming.
- Hasbro (NYSE: HAS), Mattel (NYSE: MAT), and JAKKS Pacific (Nasdaq: JAKK) all reported quarterly results this week. Only Hasbro posted a profit gain, but don't read too much into the weakness elsewhere. The telltale 2009 holiday shopping season is still several months away.
Until next week, I remain,
Rick Munarriz
