Smart Money, Mad Money, Mo' Money Added to Netflix CEO Rental Queue
The slowing economy has been kinder to Netflix than most. On Friday the online DVD rental pioneer posted its sixth consecutive quarter of profit, handily beating estimates. Analysts, on average, had expected Netflix (NFLX) to post a second-quarter profit of 40 cents a share. Instead, the company reported a profit of 42 cents a share. Subscriber growth was equally impressive. Netflix ended the quarter with approximately 8.4 million total subscribers–a 25 percent year-over-year increase from the 6.7 million subscribers it had at the end of the second quarter of 2007. Quite an achievement, since Netflix has cut back on advertising to keep profits high. And one the company plans to surpass in the months ahead. By the end of the third quarter, Netflix expects 8.68 million to 8.88 million customers, and 9.1 million to 9.7 million at year-end.
Interestingly, the company believes that there’s still quite a bit of life left in its DVD-by-mail model. “We believe that DVD-by-mail will continue to grow for five to ten years, despite overall DVD rental flatness, as e-commerce continues to grow generally and as video store economics force more store closures,” Netflix CEO Reed Hastings said in a conference call. “As we expand more into streaming, we are improving our core consumer proposition of unlimited enjoyment for a low monthly fee by combining unlimited DVDs by mail with unlimited streaming.”
And what of the pay-per-view market? Hastings says the company isn’t focusing on it. “We don’t plan to enter the pay-per-view segment where Apple, Amazon, Sony, and others focus, or the ad-support segment, where Hulu, YouTube, and others compete,” he explained. “Both of those segments will likely be substantial but our subscription segment will also be large and will provide Netflix plenty of room for growth over the coming year.”
Indeed. Certainly, the company’s new Roku box, which lets customers stream any of Netflix’s 10,000+ “Watch Now” movies to their TVs has proven that already. “Our results to date with this approach have been excellent, starting with the launch of the Roku box in May,” Hastings said. “This $99 box allows Netflix subscribers to instantly stream movies and TV episodes to their TV. It’s been a huge hit with strong reviews, strong sales, and great subscriber satisfaction. Roku purchasers are streaming video to their TVs and getting great value for the unlimited streaming portion of their Netflix membership. In the future, Roku boxes will support other Internet video content and migrate from being a Netflix only player to a general Internet video play, which will increase Roku’s sales and therefore the number of TVs we can stream to.”