How does a leisure company grow during a cash-strapped
recession? Give customers what they want. Look no further
than
Netflix (Nasdaq: NFLX) for proof. The DVD
rental specialist delivered yet another quarter of
better-than-expected results.
Revenue climbed 24% to $423.1 million. Earnings grew even
faster, with Netflix's third-quarter profit clocking in at
$0.52 a share, well ahead of last year's $0.33-a-share
showing. Wall Street was only banking on net income of $0.45
a share. There were 11.1 million subscribers at the end of
last month, 28% more than the audience Netflix commanded a
year ago.
The secret to Netflix's success lies in making its service
too addictive to quit. That's a tall order, and the company's
churn seems to belie its success there. Its monthly churn
rate of 4.4% remains within its historical range, but it's
two to three times higherthe churn of other monthly
entertainment services, including
Sirius XM Radio (Nasdaq: SIRI),
TiVo (Nasdaq: TIVO), and
DISH Network (Nasdaq: DISH).
The distinction here is that those services often require
either a three-figure investment in hardware, or a long-term
commitment in order to receive subsidized hardware.
Cancellations aren't an easy click away. Thankfully,
reactivations and new member acquisitions are just as easy --
and cheap -- for Netflix.
With plans including unlimited DVD rentals and online
streams for as little as $8.99 a month, Netflix offers
customers dynamit value. Heck, $8.99 is often less than a
single movie ticket costs these days.
The unlimited streaming also helps Netflix compete against
Apple (Nasdaq: AAPL),
Amazon.com (Nasdaq: AMZN), and
Blockbuster (NYSE: BBI) in their efforts to
sell digital flicks
a la carte.
The improving margins prove that Netflix's model math
works. They're also leading this friend to couch potatoes
everywhere to raise its guidance yet again.
2009 Guidance
Now
Three Months Ago
Subscribers
12 million - 12.3 million
11.6 million - 12 million
Revenue Continued... |