Earnings preview: Netflix's 4Q expected to sparkle

Mon, 01/25/2010 - 12:01pm
MICHAEL LIEDTKE - AP Technology Writer - Associated Press

DVD-by-mail pioneer Netflix Inc. is scheduled to report its fourth-quarter results after the market closes Wednesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Netflix's audience is expected to surpass 12 million subscribers for the first time, capping a banner year for a service that has reshaped the contours of the home entertainment market during the past decade.

Besides establishing the concept of using the Web to select DVD rentals, Netflix has made it easier and less expensive for people to stream movies and old TV shows over high-speed Internet connections.

The streaming option has become more popular during the past 18 months as Netflix has linked the technology to a variety of devices that deliver video to television screens instead of computer monitors.

In Netflix's biggest fourth-quarter breakthrough, Sony Corp.'s Playstation 3 video game console became an outlet for showing the company's roughly 17,000 streaming titles. The new feature probably spurred more Playstation 3 owners to sign up for one of Netflix's rental plans, which cost at least $9 per month for unlimited streaming.

The lift provided by the Playstation 3 is the main reason Netflix predicted it would add 900,000 to 1.2 million subscribers in the fourth-quarter — the biggest three-month influx of customers in the company's history. Netflix ended September with 11.1 million subscribers.

Netflix is becoming so pervasive that movie studios are trying to delay the availability of newly released DVDs on the rental service to given them more time to sell the discs through retailers. Those DVD sales are far more profitable for movie studios than rentals.

In what's expected to become an industry model, Netflix this month agreed to adhere to a 28-day delay on renting the latest DVDs from Warner Bros. In return for this concession, Netflix will add hundreds of Warner Bros. movies and TV shows to its streaming library.

Netflix is hoping customers will stream more movies because it reduces the company's mailing expenses.

BY THE NUMBERS: Netflix is expected to earn 45 cents per share on revenue of $446 million, according to analysts surveyed by Thomson Reuters.

ANALYST TAKE: Collins Stewart analyst Sandeep Aggarwal is expecting Netflix management to provide a bullish outlook for 2010. "We believe the fundamentals of Netflix's core DVD rental business are improving and currently not fully appreciated," Aggarwal wrote in a research report last week.

WHAT'S AHEAD: Netflix streaming will be coming to Nintendo Co.'s Wii video game console at a still-to-be determined date this spring. The deal, announced earlier this month, will make Netflix available on all three major video game consoles. Netflix has been streaming through Microsoft Corp.'s Xbox 360 since last year.

Nintendo says about 26 million Wii consoles already have been sold in the United States, giving Netflix another prime opportunity to lure more subscribers to its service.

STOCK PERFORMANCE: Netflix's stock price surged another 19 percent in the fourth quarter, bringing its gain for all of 2009 to 91 percent.


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