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Netflix Sails Ahead: Q4 Earnings Beat Economy and Expectations

netfilx earnsMany companies are struggling through the economic environment with weak earnings or weak outlook.  Netflix, the mail-order DVD rental pioneer, is so far managing to sail through on smooth waters.  Confirming “strong results” previously hinted, the company announced fourth quarter and year end earnings today ahead of expectations.

Revenue for the fourth quarter was $359.6m, a 19% year over year gain and a 5% sequential improvement.  Earnings, at 38 cents a share, were up 65% year over year.    Analysts had expected EPS of 34 cents on revenues of $354m. 

Admitting the kind of mistake many are happy to accept, CFO Barry McCarthy said on the conference call,  “Our October forecast of slowing growth turned out to be wrong.”

High adoption of Netflix “Watch Now” streaming service, and some margin benefit (Q4 margin was 35.2%) derived from fewer mailed DVD’s as a result, seems to be a core part of the growth.  CEO Reed Hastings said it was “energizing.”

Subscriber growth in the fourth quarter was up 26% to 9.39m year over year, and ahead of Netflix prior forecast of 9.14m.  Based on revised models, the company now expects to close Q1 with 10.1 to 10.3m subscribers.   2009 full year is forecast to fall somewhere between 10.6m and 11.3m subscribers. 

In other forward guidance, Netflix is projecting first quarter revenue in the range of $387m to $393m, GAAP Net Income of $15-20 million and EPS of 25cents to 33 cents per share.    For the full year, revenue is projected at $1.58b to $1.635b, Net Income of $88m to $98m and EPS in the range of $1.43 to $1.59 a share.

In conjunction with earnings, Netflix also announced a $175m stock buyback program for 2009.

Other key Netflix results, by the numbers:

Subscriber numbers
•Net subscriber growth on the fourth quarter was an increase of 718,000 compared to 451K a year ago, and 261k in Q3 2008.
•Gross Subscriber Additions were 2,085,000 for the fourth quarter.
•98% of total subscribers were “Paid Subscribers”

2008 Full Year Revenue, Net Income and EPS
•For fiscal 2008, the company recorded revenue of $1.365b, up 13% year over year.
•GAAP Net Income for fiscal 2008 was $83m, or $1.32 a share. GAAP Net income was up 25% year over year, EPS was up 36% year over year.

Subscriber Acquisition Costs and Churn
•For Q4, SAC, which is total marketing expense divided by gross subscriber additions, was $26.67 per subscriber improved from $34.58 a year ago, and from $32.21 in Q3. For the 2008 fiscal year, SAC was $29.12, down substantially from $40.86 in fiscal 2007.
•Churn for Q4 was up slightly to 4.2% compared to 4.1% a year ago, but even to the result from the third quarter.

Free Cash Flow
•For Q4, free cash flow was $51m, up from $21.1m in Q4 2007, and $26.2m in Q3.  For the full year, Fiscal 2008 Free Cash Flow was $94.7m compared to $45.9m in 2007.

Blu Ray
•Approximately 700,000 subscribers are paying an extra dollar per month to receive the HD discs.  That’s up 30% from September, but still a small fraction of Netflix’ total subscriber base.

Prior Metue Coverage of Netflix Earnings
Netflix Q3 2008 Earnings
Netflix Resets Earnings Expectations
Netflix Q2 ‘08 Earnings: Better than Expectations
Netflix Q1 ’08 Earnings: Short Term Sell? Long Term Buy?
Netflix Q4 ’07 Earnings

Other Related Articles from Metue
Netflix and LG Go Further With Connected TVs
Netflix and Tivo finally Hook Up
Blockbuster and Sonic Solutions Hook Up to Compete with Netflix Digital
Netflix Resets Earnings Expectations
Netflix Adds Starz
Netflix and LG Reveal Streaming Blu Ray Player
Netflix through Xbox 360: Another PC to TV Bridge
Netflix and LG together to Bring Broadband Movies to TV
Contemplating Disruption: Will Internet Evolution Hurt Big Media?
Netflix Expands On Demand Streaming Service, Drops Quotas
Cracking Release Windows: Studios Embracing “Day and Date”

Further press coverage on Netflix’ finances can be found at:
Yahoo Finance
Google Finance


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