Web Option Powers NetFlix Profits, Subscriber Gains

Buoyed by a new Internet delivery option, movie rental giant NetFlix Inc. (NFLX) claimed net subscriber adds for the fourth quarter of 2008, soared to 718,000, up 261,000 from the previous quarter. Net income grew 45 percent over the same quarter in 2007.

NetFlix now claims to have amassed a subscriber base for its initially mail-delivered monthly subscription DVD service of 9.4 million, reinforcing the success of its business model and service against a backdrop of a crippled economy.

That subscriber base figure is up 8 percent from the previous quarter and represents a 26 percent year-over-year increase for NetFlix.

It remains to be seen how NetFlix fares in 2009, with the proliferation of lower-priced DVD rental options such as $1-a-night DVDs from automated kiosk company Redbox and a still-increasing number of over-the-top Web-based movie offerings.

In 2008, NetFlix chose not to stand pat with its prior success and added factors that made it even easier to use the monthly service and separate itself from brick-and-mortar-based retailed such as Blockbuster Inc. The former initially won wide consumer acclaim for convenience, on monthly subscription price and no late fees.

“Consumers embraced the Netflix experience in near record numbers last quarter, with growth in our core DVD offering and growing momentum with internet streaming,” said Reed Hastings, Netflix co-founder and chief executive officer, in prepared comments.

Netflix is also partnering with leading consumer electronics companies to offer a range of devices that can instantly stream movies and TV episodes to members' TVs from Netflix.

For one monthly price, Netflix members can get DVDs delivered to their homes and can instantly watch movies and TV episodes streamed to their TVs and PCs, all in unlimited amounts. Members can choose from more than 100,000 DVD titles and a growing library of more than 12,000 choices that can be watched instantly.

Revenue for the fourth quarter of 2008 was $359.6 million, representing 19 percent year-over-year growth from $302.4 million for the fourth quarter of 2007, and a 5 percent sequential increase from $341.3 million for the third quarter of 2008. Revenue for fiscal 2008 was $1.365 billion, up 13 percent from $1.205 billion for fiscal 2007. Gross margins also widened during the quarter.

Net income for the fourth quarter of 2008 was $22.7 million, compared to $15.7 million, for the fourth quarter of 2007 and $20.4 million for the third quarter of 2008, according to NetFlix. The above-listed figures are before stock-based compensation and net of taxes.

Churn for the fourth quarter of 2008 was 4.2 percent, compared to 4.1 percent for the fourth quarter of 2007 and 4.2 percent for the third quarter of 2008. Churn includes free subscribers as well as paying subscribers who elected not to renew their monthly subscription service during the quarter.

The company also announced an up to $175 million stock buyback program for this year.

NetFlix also provides guidance for the first quarter of this year, in which it anticipates ending subscribers of 10.1 million to 10.3 million, revenue of $387 million to $393 million and net income of $15 million to $20 million.

For the full year, NetFlix projects ending subscribers of 10.6 million to 11.3 million, revenue of $1.58 billion to $1.635 billion and net income of $88 million to $98 million.

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