Netflix 1Q earnings soar on gain of 3.6M customers

Apr 26, 2011 By MICHAEL LIEDTKE , AP Technology Writer
In this April 22, 2011 photo, the exterior of Netflix headquarters is shown in Los Gatos, Calif. Netflix Inc. reports quarterly financial earnings Monday, April 25, 2011, after the market close. (AP Photo/Paul Sakuma)

(AP) -- Netflix Inc. delivered another rousing performance in the first quarter, with its video subscription service attracting 3.6 million more customers to boost its U.S. audience to roughly the same size as the country's largest cable-TV carrier, Comcast Corp.

But the accomplishments announced Monday were overshadowed by a disappointing forecast for the current quarter, a period when Netflix's subscriber growth always slows because people are taking vacations and spending more time outdoors.

The cautious outlook rattled some investors already worried that Netflix's earnings will be squeezed as the company faces more competition in the Internet video-streaming market. Netflix's early success in streaming movies and TV shows over high-speed Internet connections has propelled a prosperous stretch that has increased the company's by about eightfold since the end of 2008.

The shares backtracked Monday, retreating $13.27, or 5.3 percent, to $238.40 in extending trading after Netflix's first-quarter numbers and outlook came out.

After adding more than 3 million customers for the second-consecutive quarter, Netflix ended March with 23.6 million subscribers in the U.S. and Canada. Of that total, 22.8 million are in the U.S. - the same number of households subscribing to Comcast's cable-TV service at the end of December. Comcast is scheduled to release its March numbers next week when it reports its first-quarter results.

Netflix, which is based in Los Gatos, is now part of the entertainment menu in about one in every five U.S. households.

"What's really clear is consumers love Netflix streaming," CEO Reed Hastings said in a Monday interview.

Hastings, though, said he doesn't view Netflix as a threat to Comcast. He believes most consumers still consider cable TV to be more indispensible than video streaming.

As a result, he has been trying to position Netflix's video streaming service as an ally that could help and other cable providers attract and retain more subscribers for their high-speed Internet services.

But some Internet service providers are starting to crack down on heavy users of Netflix's streaming service by threatening to impose surcharges on households whose downloads exceed certain limits. Netflix responded to new limits imposed by Rogers Communications Inc. in Canada by reprogramming its streaming service in that country so it would devour less bandwidth.

Netflix earned $60.2 million, or $1.11 per share, during the first quarter. That was up 87 percent from $32.3 million, or 59 cents per share, at the same time last year.

The results were 4 cents per share above the average estimate among analysts surveyed by FactSet.

Revenue rose 46 percent to $719 million about $13 million above analyst estimates.

Netflix charges $8 per month to stream movies and TV shows over high-speed Internet connections. Most customers pay a little more per month so they can also rent DVDs delivered through the mail. The company's average subscription price stood at nearly $12 in the first quarter, down from $12.90 in the previous year, and management expects further declines as more customers stop renting DVDs.

The company is trying to nudge its subscribers to stream video more frequently to help lower its postal expenses. In the process, Netflix hopes to free up more money to buy more compelling material for its streaming library, which is currently stocked with more than 20,000 titles.

Netflix spent $192 million on streaming rights in the first quarter, nearly quadrupling the amount spent at the same time last year.

The company's recent success emboldened Netflix to expand its streaming service into Canada last fall. Netflix plans to enter another market outside the U.S. in the second half of this year and then move into another country early next year.

As usual, expects its growth to taper off in the spring and summer. Management is gearing up for an additional 1.3 million to 2.25 million subscribers in the second quarter, an improvement over the 1 million attracted during last year's April-June period.

The company projected earnings of as much as $1.15 per share for the second quarter, below the average analyst estimate of $1.19, according to FactSet.

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