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Netflix Hits All-Time High as Subscribers Surge

Thursday, 21 Oct 2010 03:12 PM

Netflix Inc, the mail-order and online movie-rental service, reached an all-time high in Nasdaq Stock Market trading after a surge in new customers boosted third-quarter sales and profit.

Netflix climbed $18.41, or 12 percent, to $171.56 at 2:33 p.m. New York time, after touching a record $174.94. The increase was the biggest since April 22 for Netflix, which has more than tripled in value this year.

About 1.93 million customers signed up for the service last quarter, a net increase from 1.03 million in the second quarter, to reach 16.9 million subscribers, Los Gatos, California-based Netflix said in a statement yesterday. Chief Executive Officer Reed Hastings has said Netflix will spend more to get movies and television shows that can be delivered over the Internet to computers and Web-connected TVs. The company is testing a streaming-only service in the U.S., he said yesterday.

“You are beginning to see rapid growth in subscribers,” said Edward Woo, an analyst at Wedbush Morgan Securities, which has an “underperform” rating on the stock.

Net income rose to $38 million, or 70 cents a share, from $30.1 million, or 52 cents, a year earlier, Netflix said yesterday after markets closed. Sales climbed 31 percent to $553.2 million, beating analysts’ projections of $551.7 million.

While profit missed the 71-cent average of 27 analysts’ estimates, investors are focusing more on the increase in customers, Woo said in an interview.

Total subscribers increased 52 percent from 11.1 million a year earlier and 13 percent from the second quarter, the company said. Netflix, which also offers DVDs by mail, said 66 percent of customers used the Web service, up from 61 percent in the second quarter.

‘Streaming Company’

Analysts at Janney Montgomery Scott LLC, Oppenheimer & Co. and Merriman Curhan Ford & Co. upgraded their ratings on Netflix.

“By every measure we are now a streaming company, which also offers DVD-by-mail,” Hastings said in comments posted on the company’s website. In the fourth quarter, “we’ll spend more on streaming content than DVD content, and we’ll deliver many more hours of entertainment via streaming than on DVD.”

Netflix began a streaming-only service in Canada last month at C$7.99 a month and is testing it in the U.S. If the results meet expectations, the service will be expanded this quarter, Hastings said on the company’s website.

The company said third-quarter gross margin, the share of revenue left after subscription and fulfillment costs, widened to 37.7 percent from 34.9 percent a year earlier and 39.4 percent in the second quarter. Customer turnover dropped to 3.8 percent from 4 percent in the second quarter.

Netflix raised its year-end subscriber forecast to as much as 19.7 million from up to 18.5 million previously. Sales this quarter will be $586 million to $598 million. The company projects net income of $32 million to $40 million, and earnings of 59 cents to 74 cents a share, unchanged from prior forecasts.

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