Blog Post

Earnings: Netflix Q1 Revs Up 7 Percent; Income Up 32 Percent; 3 More Partners For the Box

Netflix (NSDQ: NFLX) has announced Q1 revenue of $326.2 million, a 7 percent increase from $305.3 million in the year-ago period. Net income rose 32 percent to $13.4 million ($.23 per share) from $9.9 million ($.14 per share). The company says it ended the year with 8.2 million total subscribers, an increase of 21 percent from the year-ago period, and 10 percent more than where it ended in 2007. Other metrics that improved, perhaps because of diminished head-on competition from Blockbuster: subscriber acquisitions costs ($29.50, down from $45.60) and churn (3.9 percent, down from 4.4 percent). The company modestly raised its outlook for the year, forecasting revenue of $1.35-$1.39 billion, from $1.345-$1.385 billion. On the outlook, Netflix shares are getting whacked after hours, falling over 13 percent.

Release | Webcast (5:00 PM ET)

Conference call: Temporarily, Netflix is in a sweet spot. Its primary competitor (Blockbuster) has pulled back from the market, and at at least so far, online distribution hasn’t proved particularly disruptive to its business. But the company and investors know that this state won’t last forever. Throughout this evening’s conference call, chairman and CEO Reed Hasting talked about how much it would be spending on digital content to support its instant-viewing online option. This is a key reason, the company claims, its earnings growth won’t be lights out through the rest of the year. Some highlights from the call:

Blockbuster: It’s “too early” to start figuring the impact of a Blockbuster-Circuit City tie-up, so that guessing game can be left up to the analysts. Meanwhile, if Blockbuster (NYSE: BBI) were to decide to exist online distribution entirely, a la Wal-Mart (NYSE: WMT), Hasting suggested the company could conceivably buy those users; “If blockbuster made such a decision, we could probably work something out.” Though he added, noting how much Blockbuster has invested in this business: “I anticipate that they’ll stay in the business for the foreseeable future.”

Consumer electronics: The company stressed that partnering with consumer electronics makers is a key step in bridging the gap, so that customers really feel comfortable watching video over the internet. Its partnership with *LG* is moving along, and it has others in the queue: “I can tell you, we have LG (SEO: 066570), plus three additional partners actively working on a integrating our service into their products.” We’ll find out over the coming quarters who they are. Beyond that, the company knows, it’ll be a long time before any of these deals meaningfully contribute to the bottom line.

Instant viewing: Right now, subscribers to the DVD rental service have a free lunch, as the digital service is free to them. That free lunch will end, though it’s not clear when, or what kind of costs consumers can expect. But considering how much the company is spending on its digital service — so much that its impacting earnings this year — Netflix will get its payment.

Blu-ray: Starting soon, customers can expect to see a fee increase if they get Blu-ray discs. The amount is not known, but given that consumers are used to paying more for HD content (and Blu-ray discs are more expensive), this is another free lunch that will end.