Netflix Q3 profit more than triple own forecast
LOS ANGELES, Oct 15 (Reuters) - Online DVD renter Netflix Inc. <NFLX.O> on Wednesday reported a quarterly earnings more than triple its own forecast as subscribers signed up and stayed with the service while competitors like Wal-Mart failed to stem its growth.
"Netflix continues steady, reliable growth despite competition," Chief Executive Reed Hastings told Reuters.
Los Gatos, California's Netflix, which rents DVDs to subscribers who pay a monthly fee of $20, improved its performance in key measures such as lowering the number of cancellations compared with adding new customers and reducing marketing costs.
Hastings said Netflix launched a redesigned Web site that made renting easier, and cut the time it takes for subscribers to receive their movies. Netflix also increased its inventory of new DVDs which boosted available movie titles.
Netflix posted a third-quarter net profit of $3.3 million, or 10 cents a share, compared with a net loss of $2.8 million, or 13 cents a share, last year.
Third quarter revenues climbed 77 percent to $72.2 million from $40.7 million last year.
Excluding stock-based compensation costs, earnings were $6.1 million, or 19 cents per diluted share, compared to a loss of $228,000, or 1 cent per share last year.
Financial analysts had been expecting a third quarter net profit of 10 cents per share on revenue of $70 million according to Reuters Research, a unit of Reuters Group Plc.
Early in the quarter, Netflix had forecast a range of profits that ranged to $1 million on the high end.
2004 GUIDANCE
In a conference call with reporters and analysts, Chief Financial Officer Barry McCarthy narrowed expectations for 2004 earnings by saying a range of $1.10 to $1.15 per share net profit "is more likely" than the current 60 cents to $1.16.
Analysts on average expect Netflix full year 2003 profit of 37 cents a share, according to Reuters Research.
Media analyst Dennis McAlpine, who runs his own investment firm McAlpine Associates noted the new range looked like a good number given that guidance for 2004 had yet to be issued.
"It's hard to find much of anything bad in there," he said of the earnings report and the details on the conference call.
In after hours trading, the stock first climbed on the report before slipping back to trade at $44.70 on the Instinet system, flat with its Nasdaq close.
On Oct. 1, the company said it ended the third quarter with 1.29 million subscribers, a 74 percent increase from last year and 13 percent ahead of the previous quarter. Since then, the stock has risen some 40 percent.
In Wednesday's earnings report, Netflix said its average monthly subscriber churn rate -- which measures customer cancellations compared to additions -- fell to 5.2 percent from 7.2 percent last year and 5.6 percent in the second quarter. A lower churn rate generally means fewer cancellations.
Subscriber acquisition costs -- the cost of having each new customer sign up -- fell to $31.81 per new trial subscriber from $33.57 last year, but was up from the second quarter's $30.45.
The subscriber growth and lower churn came even as Netflix faced increased competition from major retailers like Wal-Mart Stores Inc. <WMT.N> and video chain Blockbuster Inc. <BBI.N>.
Hastings said feedback from clients, company research and independent reports have shown that Netflix's DVD inventory and delivery times are better than competitors.
10/15/03 19:24 ET
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