Netflix Beats Estimates with Higher Quarter Profit

U.S. online DVD rental company Netflix topped Wall Street estimates with higher fourth-quarter profits on Wednesday, but subscriber growth fell short of some analysts' forecasts.

Net income grew to $15.8 million, or 24 cents per share, from $14.9 million, or 21 cents per share, in the year-ago period.

Netflix stock fell more than 2 percent to $23.20 a share in afterhours trading after closing up $1.45 a share, or 6.5 percent, at $23.76 a share. Fourth-quarter revenue rose 9 percent to $302.4 million from $277.2 million for the fourth quarter of 2006.

Income, excluding items, totaled $17.8 million, or 27 cents a share for the fourth quarter of 2007. Analysts on average had forecast earnings, on that basis, to total 17 cents a share, according to Reuters Estimates.

Netflix ended the quarter with about 7,479,000 total subscribers, which was in line with its forecast, but below what some analysts had expected. The net subscriber change was an increase of 451,000. Some analysts had expected an uptick of more than 472,000.

"I'm surprised they didn't beat on the subs (subscribers)," said Wedbush Morgan analyst Michael Pachter.

JP Morgan analyst Barton Crockett said both Netflix fourth quarter earnings and its 2008 forecast topped his expectations, but the subscriber additions were a "hair" lighter than some models.

He also cited concerns about churn, a measure of paying subscribers who elect not to renew their monthly subscription, which rose to 4.1 percent in the fourth quarter from 3.9 percent in the year-ago quarter.

"The one concern is that Netflix may stall in a couple of years on subscriber growth and these numbers are consistent with a view that it could be nearing maturity," he said.

Crockett believed the after-hours stock drop was linked to profit-taking after its earlier run up during market hours.

For the first quarter of 2008, Netflix forecast ending subscriber ranges of 7.85 million to 8.05 million, revenues of $323 million to $328 million, and net income of $9 million or 13 cents per share to $14 million or 21 cents.

For full-year 2008, it forecast an ending subscriber range of 8.4 million to 8.9 million, revenue of $1.3 billion to $1.35 billion, net income of $75 million or $1.12 a share to $83 million or $1.24 per diluted share.

Crockett said he had forecast 2008 profits of $1.09 per share.

Ad spending cuts by rival Blockbuster , a bankruptcy filing by
another rival, Movie Gallery and better cost management by Netflix boosted the fourth quarter profits, analysts said.

Earlier this month, Netflix announced plans to roll out a set-top box with LG Electronics in the second half of 2008 enabling subscribers to watch films streamed from the Web to TVs. It also said it would offer subscribers unlimited access to movies and TV shows to watch via the Web on their personal computers after previously limiting the number of hours of video accessed via the Web.

The move was widely seen as a preemptive strike against Apple's entrance into the online video-on-demand ring with the addition of movie rentals to its successful iTunes platform. Apple also relaunched its Apple TV product to compliment the new movie rental feature by enabling viewers to connect directly to iTunes from their TVs without a PC.