NetFlix increases profits then shoots self in foot
Netflix Inc.’s profits rose 36 percent after its largest subscriber gains ever in its 10 year history. However Netflix Inc also foprojects a slowdown over their next quarter.
Netflix earned $13.4 million, or 21 cents per share, during the first three months of the year. That compared with net income of $9.9 million, or 14 cents per share, at the same time in 2007.
Revenue rose 7 percent to $326.2 million from $305.3 million.
Netflix Inc ended March with 8.24 million subscribers, a gain of 764,000 customers from the end of 2007. The company only expects between 60,000 to 260,000 new customers to sign up before the current quarter ends in June. This is due in part to the coming of summer and people spending more time out of doors than in. Fall and Winter are Netflix Inc.’s traditional high-water subscription months.
In after hours trading Netflix shares have fallen over $5.50 due to the expected spring/summer subscriber slowdown. Even though Netflix expects to close in on 9.7 million subscribers come the end of the year the projected slowdown has clearly caused investors some concern.
To make matters worse Netflix Inc. Chief Executive Reed Hastings has stated that they will soon be phasing in a special “Blu-ray surcharge” to defray some of its expenses for stocking its library with the more expensive, high-definition Blu-ray discs, Netflix plans to raise its fees later this year for those rentals by a “modest” amount. No clue what they mean by “modest”.
In other news Netflix Inc. has also announced that they are teaming up with three consumer electronics companies to bring the Netflix streaming service direct to consumer TVs. The only way to watch the Netflix movies on demand is via a PC running Microsoft Internet Explorer and a special Netflix plug-in. Having watched these movies myself I have to say that the selection is very poor and the video quality is even worse than standard definition TV.
The Netflix on demand service is great (a precursor service was first done by SNET in CT in the mid 90’s using technicians in a room full of VCRs) in that it allows the subscriber to pick from more than the usual 10 or 15 offerings on cable or satelite but unless they can improve the video quality and offer current movies as well as the old stuff I don’t see this going anywhere fast.
My advice? Hold off on Netflix stock until the summer ends. If you can buy right before the next quarter ends. I expect at the next quarterly meeting the CEO and board will announce that with summer nearing its end they expect to see even more subscribers signing up for the service.
The fall is also when more information on the consumer electronic devices will surface.
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