January 26, 2009 / 9:32 PM / 8 years ago

UPDATE 2-Netflix posts higher fourth-quarter profit

4 Min Read

 * Company outperforms revenue, subscriber growth targets
 * Streaming is 'energizing our growth'-CEO
 * Shares rise 7 percent in after-hours trade  (Recasts first paragraph with costs, streaming growth; adds analyst comment, forecast; adds byline)
 By Gina Keating
 LOS ANGELES, Jan 26 (Reuters) - Netflix Inc (NFLX.O), the top U.S. online DVD rental company, posted higher quarterly profit on Monday from lower costs and growth in its Internet streaming service.
 The company also forecast 2009 year revenue and earnings that straddled Wall Street estimates.
 The company's share price jumped more than 7 percent in after-hours trading.
  "It's very clear that streaming is energizing our growth," Netflix Chief Executive Reed Hastings said on a conference call with analysts.
 Netflix saw its margins expand in the quarter as marketing costs dropped by nearly 23 percent and cancellations held steady.
 "Subscriber growth and the lower cost of customer acquisition were the headlines this quarter," Jefferies & Co analyst Youssef Squali said. "Margin growth should be sustainable but the drop in (subscriber acquisition costs) is not likely longer term as online advertising starts rebounding."
 Net income for the fourth quarter rose to $22.7 million, or 38 cents per share, from $15.7 million or 23 cents per share in the previous year's fourth quarter. On an adjusted basis, earnings grew to 41 cents per share.
 Revenue increased 19 percent to $359.6 million from $302.4 million a year earlier.
 Analysts on average expected fourth-quarter net earnings of 34 cents per share, adjusted earnings of 37 cents per share, and revenue of $354.2 million, according to Reuters Estimates.
 "The quarter was exactly what we expected," Wedbush Morgan analyst Michael Pachter said. "The subscriber numbers came in higher than I expected, average revenue per user (ARPU) lower than I expected. That could be attributable to people joining late in the quarter...because the Xbox 360 partnership rolled out in late November."
 The company had forecast revenue of $351 million to $357 million and net earnings of 30 to 38 cents per share.
 Subscriber growth in the quarter of 26 percent resulted in an ending subscriber base of 9.4 million, far exceeding Netflix's forecast for ending subscribers of up to 9.15 million.
 Netflix expects to end the first quarter with 10.1 million to 10.3 million total users, and finish off the full year of 2009 with 10.6 million to 11.3 million total subscribers.
It forecast first-quarter net earnings of 25 cents to 33 cents per diluted share and fiscal year 2009 net earnings of $1.43 to $1.59 per diluted share.
 Wall Street was expecting first-quarter net earnings of 30 cents per share and fiscal year net earnings of $1.49 per share.
 In the fourth quarter, Netflix's gross margins expanded to 35.2 percent from 33.8 percent a year ago as its subscriber acquisition costs plummeted.
 Subscriber acquisition, or marketing, costs fell to $26.67 per gross subscriber addition, compared to $34.58 for the same period last year.
 Churn, or cancellations, were up slightly, to 4.2 percent, compared to 4.1 percent a year earlier.
 Shares of Netflix jumped about 7 percent higher in after-hours trade to $32.30, after closing down nearly 1 percent, at $30.15 on Monday on Nasdaq.  (Reporting by Gina Keating; editing by Carol Bishopric)   

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