Posted on Fri, May. 24, 2002
Investors give Netflix thumbs up
Shares of the Los Gatos company that rents DVDs over the Internet rise 12% on first day of trading
By Jessica Guynn
Netflix Inc. was more than ready for its close-up. The online DVD rental company got good reviews from investors Thursday in its Wall Street debut on the Nasdaq Stock Market.
Its shares rose as high as $17.40 and closed up 12 percent at $16.75 from the initial public offering price of $15.
Netflix is only the second company this year to test the public appetite for Internet IPOs. Online payment provider PayPal Inc., which went public in February at $13 a share, closed at $25.32 Thursday on the Nasdaq.
Although these IPO successes have hardly whetted a return to the high-flying, high-trading dot-com days, the warm reception on Wall Street has brought other online businesses out of the wings. Travel site Orbitz Inc. this week filed to go public to the tune of $125 million. Overstock.com Inc., which sells surplus and close-out merchandise from rugs to jewelry over the Internet, filed to raise as much as $36.8 million in March.
"Given that this has been a horrible year for IPOs," said Rob Enderle, an analyst with Giga Information Group, "Netflix had a stellar performance today."
Netflix.com abandoned its first attempt to raise $86.3 million in April 2000 in the midst of a moribund IPO market. This time around, it dropped the dot-com from its name and ended up raising $82.5 million to pay off debt and to use for general purposes, including working capital and marketing.
Netflix, which trades under the symbol NFLX, will "use the capital in the most prudent way, to enable folks across America to ... learn of our service and try it for free," said Joel Mier, director of research and analysis for the Los Gatos-based company.
Most of Netflix's 600,000 subscribers pay $19.95 a month to rent three movies at a time. Subscribers, who get and return the DVDs by first-class mail, have a library of 11,500 titles from which to choose.
Netflix has a lot of fans who sound a lot like walking commercials for the online service. They say they don't miss the hassles of renting in the brick-and-mortar world. They especially like not having to pay late fees because they can keep the movies as long as they want.
Aisha Williams, 29, who works for Robert Half International in Pleasanton, forgot she had rented movies from Blockbuster and didn't return them for two weeks, racking up more than $30 in late charges. "That never would have happened with Netflix," said Williams, a Netflix subscriber for a year.
Angela Noury, 25, a quality-control analyst for Genentech Inc., works nights; her husband, a research associate at Chiron Corp., works days. "I would always say, 'Honey, can you drop off the movies on the way to work?' And then I would get in the car that night, and the movies would still be sitting in the backseat," said Noury, whose co-workers turned her on to Netflix four months ago. "We always, always, always had late fees."
While the selection and convenience are big draws, there are drawbacks, too. Customers say they sometimes end up on long waiting lists for popular movies. Netflix also doesn't rent video games.
And Netflix is not without glitches. As soon as Carrie Scott's 10-day free trial was up, her next delivery of movies never arrived. She had to file "missing movie" reports and couldn't use the service for two weeks. She wrote two letters to customer service and only got a 25 percent credit.
"I do intend to keep using the service for now because I want to believe this was a fluke situation," said Scott, 30, who works for a San Francisco advertising agency.
Though not yet dominant, the DVD format is all the rage: It's already the fastest-selling consumer-electronics device. At the end of the first quarter, the DVD's share of the home video market was 29.2 percent, up 16.8 percent from a year earlier, according to the Video Software Dealers Association. More than 1 million DVD players sold in April, a 73 percent increase from April 2001, the Consumer Electronics Association reports.
The "I want my DVD" generation is also the Internet generation. The young demographic that rents the most movies is also the most likely to rent them on the Web. "I'll never do anything else," said Vince Chandler, 27, an executive assistant with a San Francisco investment firm and a college student.
Investors are clearly bullish on home entertainment, with shares of Blockbuster and Hollywood Entertainment shooting up this year. And they seem upbeat about Netflix's prospects of reaching the growing number of households snapping up DVD players. "Netflix has a business model that investors could understand," Enderle said. "Investors tend to like brands they can touch and feel."
Netflix isn't a sure thing. It's still swimming in red ink, losing $141.8 million since its inception. But Netflix narrowed its loss in the first three months of this year from $20.6 million a year ago to $4.5 million. At the same time, first-quarter revenue jumped from $17.1 million to $30.5 million.
Whether Netflix, the oldest and best-known service, can hold onto its lead remains to be seen. It faces mounting competition from Newark-based Rentmydvd.com and other fledgling DVD-delivery services, as well as the potential for some very deep-pocketed competition from Blockbuster, which says it plans to get into the online rental business. |
