It was a better-than-expected quarter for Netflix
However, while the company once expected that it would break even for all of 2005, it is now guiding investors to expect a deficit for the current quarter as well as a loss of between $5 million and $15 million for the year as a whole. Revenue that it once projected to come in at $700 million or better for the year is also being reduced to a range of $660 million to $685 million.
That's where it gets hairy. Earlier this year, the company was able to get to 3 million subscribers fairly quickly, and churn held near its historic low at 5%. If the company is still looking to finish the year with roughly 4 million members, why so glum on the top and bottom line all of a sudden? Especially after the healthier than projected March quarter?
Connect the dots. If the subscribers are holding up -- and coming in earlier in the year than expected -- what could cause revenue to come in lower than originally anticipated? Yes, that's right, it smells like another price cut is possible. The company won't say it, and as a shareholder, I hope it's not true. (As a subscriber, well, obviously, I can live with that.) Perhaps it's the company's recent emphasis on the cheaper $11.99 plan, which caps rentals at four a month, that finds the top line skewing lower. If that's the case, I can live with that, too, because I like how that niche plan can produce reliable profitability. Active renters can overuse the more common $17.99 unlimited rental plan to the company's financial detriment.
Yet if that's so, it's not all that comforting to see the company's customer acquisition costs inch higher, especially for these lower-paying subscribers. While the company's guidance translates into profitability during the second half of the year, I know I won't be the only one watching its updated guidance in three months for clearer direction on the path back to positive earnings. I don't like to see rainbows stretched out further while I'm in the middle of a rainstorm.
Ever since the company dramatically cut its prices to dissuade Amazon.com
I will give Netflix the benefit of the doubt, but the market? It just isn't that kind.
Other related stories:
- Netflix also needs to think about tomorrow.
- There are ways for Blockbuster and Netflix to make this work.
- Talk shop with your fellow Fools in our Netflix discussion board.
Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and investor -- since 2002. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.