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Netflix: Video-On-Demand Can Wait

Posted by: Roben Farzad on October 24, 2006

Like any good American, I’ve used this blog to rip Blockbuster Inc (BBI), the moribund, universally disliked video store chain. Conventional wisdom says that video-on-demand — the cable industry’s competitive holy grail — will eat Blockbuster’s lunch. But what is killing Blockbuster in the here-and-now is Netflix (NFLX), the convenient DVD-by-mail service that is invading mailboxes across the country. The company’s blowout third quarter earnings pretty much told the whole story; the stock jumped nearly 19% Tuesday. Read on for highlights:

Netflix ended the quarter with 5.66 million total subscribers -- a 58% pop from the 3.59 million it counted this time in 2005. And the company is adding ever more subs per quarter: 493,000 in this latest period vs 396,000 added in Q3 of 2005. Revenue accordingly grew by 48% year-over-year -- while the company jacked quarterly earnings from 11 cents a share to 18 cents. Netflix sports a comfy 38% gross margin. Quite tellingly, the firm's market value now stands at $1.9 billion. Lowly Blockbuster's?: Less than half that. In fact, at $3.75, one Blockbuster share might not even be enough to buy you a rental at most stores [assuming: 1) you actually find your movie and 2) survive the half-hour checkout purgatory].

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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