Netflix: Why the Disappointment?
Posted by: Cliff Edwards on April 24, 2009
Is Netflix too succesful for its own good?
That certainly seems to the view of investors after the mail-order movie rental company reported boffo earnings today, including record subscriber growth and a 70% surge in profits. Netflix stock, under pressure all day on profit-taking, dropped an additional 6% to $42.25 a share in after-hours trading.
The prevailing wisdom? The company should have done better.
To recap, Los Gatos, Calif.-based Netflix said it earned $22.4 million, or 37 cents a share, compared with a profit of $13.3 million, or 21 cents a share a year ago. Revenue rose 21% to $394.1 million. Analysts were expecting a profit of 33 cents a share, excluding stock-based compensation, on $391.1 million in revenue.
The company continues its strong momentum. Netflix ended the quarter with about 10.3 million subscribers. For the second quarter ending in June, Netflix expects revenue of $403 million to $409 million and a total of 10.4 million to 10.6 million subscribers. And the actual cost of acquiring subscribers fell to $25.79 from nearly $30 a year ago.
No doubt the sharp drop in Netflix stock can be attributed to the heady share gains logged so far this year.
But here’s another reason investors are getting a little skittish: Redbox, a movie kiosk operator with units in supermarkets, Wal-Mart and other places is becoming more of a competitor. The company says business is so strong that itis planning to expand from 12,900 kiosks to 20,000 by the end of the year. It’s movies rent for $1 a day.
I wonder if those concerns are much ado about nothing. Seems to me Redbox competes more with Blockbuster than Netflix (though both require choosing movies online). With Redbox, you still have to jump into a car to go to a kiosk, while Netflix caters to people who want the movie delivered right to the door—often in as little as a day.
Further, Netflix distinguishes itself with a massive catalog of titles, the ability to rent Blu-ray high-definition titles and streaming to computers, TiVos, Roku players and other devices.
Netflix certainly has a lot of competition, particularly in the streaming-media category, but for now it looks like it will remain far and away the undisputed king of physical movie rentals.