Netflix customer growth eclipses 3Q earnings miss

Oct 21, 2010 By MICHAEL LIEDTKE , AP Technology Writer
In this file photo made July 20, 2010, a Netflix customer holds up a movie in Palo Alto, Calif. Netflix Inc. reports quarterly financial earnings Wednesday, Oct. 20, 2010, after the market close. (AP Photo/Paul Sakuma, file)

(AP) -- Netflix Inc.'s video subscription service won another horde of new fans in the third quarter, overshadowing a rare earnings shortfall.

The addition of 1.9 million subscribers seemed to matter far more to investors than an earnings figure that was a penny below analyst estimates. shares surged by more than 9 percent after the numbers came out.

Netflix earned $38 million, or 70 cents per share. That's up 26 percent from $30.1 million, or 52 cents per share, at the same time last year.

Analysts, on average, had projected third-quarter earnings of 70 cents per share, based on a Thomson Reuters poll.

Revenue rose 31 percent from last year to $553 million, $2 million above analyst forecasts.

The company, based in Los Gatos, needs to show the popularity of its service won't be a short-lived phenomenon to support a stock that has nearly tripled in price so far this year. The shares ended Wednesday's regular session at $153.15 before adding $14.05 in extended trading.

The third quarter, which spans Netflix's traditionally sluggish season, went a long way toward proving the company's staying power.

The 16.9 million subscribers that Netflix boasted at the end of September was 200,000 above the best-case scenario projected by the company three months ago.

Management expects to gain another 2.1 million to 2.9 million customers by year's end. That means Netflix could enter 2011 with more than 19 million subscribers, doubling the service's size in two years.

The explosive growth has coincided with Netflix's efforts to expand an Internet video streaming library that initially was designed to supplement the DVD-by-mail service that it launched in 1999.

With high-speed online access now becoming a household staple and an array of gadgets making it easier to connect high-definition TVs to the Web, Netflix is about to reach a tipping point in its evolution as Internet streaming goes mainstream.

At some point in the fourth quarter, Netflix CEO Reed Hastings predicted the company's subscribers collectively will watch more hours of video streamed on the Web than on DVD players. That transition is expected to lower the amount of money Netflix spends for the postage to deliver DVDs, something that should eventually help boost Netflix's earnings.

For now, though, Netflix is spending heavily to obtain the streaming rights to more movies and TV shows to help lure more customers and shift more of its existing subscribers away from DVDs.

In the third quarter, Netflix spent $115 million on video streaming rights, up from just $10 million at the same time last year. Meanwhile, spending on DVDs dropped 35 percent from a year ago to just under $30 million in the third quarter.

Netflix's streaming service has become so popular that it is now the largest source of online traffic in the U.S. during peak evening hours, according to a report released Wednesday by Sandvine Inc., a Canadian company that supplies traffic-management equipment to Internet service providers.

Netflix accounts for 20.6 percent of peak traffic to Internet users, more than double that of Google Inc.'s YouTube, Sandvine said.

The streaming service may start hogging Internet bandwidth in Canada too. Netflix introduced a streaming-only plan priced at $8 per month in Canada late in the third quarter. In the U.S., Netflix's plans for DVDs and unlimited streaming start at $9 per month. The company is experimenting with offering an streaming-only option in the U.S., too.

Explore further: Out-of-patience investors sell off Amazon

not rated yet
add to favorites email to friend print save as pdf

Related Stories

Netflix 2Q profit shines, stock still loses luster

Jul 21, 2010

(AP) -- Netflix Inc.'s second-quarter performance got panned by investors Wednesday for bringing in less revenue than expected, even though the movie subscription service added a million more customers to ...

Familiar script: Netflix 2Q tops expectations

Jul 23, 2009

(AP) -- Netflix Inc.'s second-quarter profit shot past analyst expectations, following a familiar script as recession-weary consumers flocked to its DVD-by-mail and Internet streaming service.

Netflix adds 1.1M customers, 4Q profit up 36 pct

Jan 27, 2010

(AP) -- Netflix Inc.'s fourth-quarter profit surged 36 percent as its DVD-by-mail service surpassed 12 million subscribers, and the company announced an upbeat outlook for 2010 that sent its shares soaring Wednesday.

Recommended for you

Out-of-patience investors sell off Amazon

Oct 24, 2014

Amazon has long acted like an ideal customer on its own website: a freewheeling big spender with no worries about balancing a checkbook. Investors confident in founder and CEO Jeff Bezos' invest-and-expand ...

States ascend into the cloud

Oct 24, 2014

Seven years ago, the state of Delaware started moving computer servers out of closets and from under workers' desks to create a consolidated data center and a virtual computing climate.

Microsoft drops Nokia name from smartphones

Oct 24, 2014

Microsoft said Friday it was dropping the Nokia name from its Lumia smartphones, rebranding following the acquisition earlier this year of the Finnish group's handset division.

Amazon's loss makes holidays a question mark

Oct 24, 2014

Amazon's trademark smile icon is becoming more of a grimace. The world's largest online retailer reported a wider third-quarter loss than analysts expected and gave a disappointing holiday forecast.

User comments : 0