Netflix bucks trends, beats for Q4

Netflix, considered by some on Wall Street to be recession proof, beat analysts estimates for its fourth quarter, reporting an adjusted net income of $22.7 million, or 38 cents per share, on revenue of $359.6 million. Analysts had been expecting income of 34 cents on revenue of $354 million. Revenue was up 19 percent from the year-ago quarter and income was up 45 percent and eps was up 65 percent from a year ago, the company said. (Statement)

Also, the company said it ended the quarter with about 9.4 million subscribers, a 26 percent from last year's fourth quarter and an 8 percent increase from last quarter. It previously said it expected to add 480,000 new subscribers this quarter but instead added more than 700,000. The company said it expects to cross the 10 million mark in the current quarter.

For fiscal year 2008, revenue was $1.365 billion, a 13 percent increase over 2007 sales. Adjusted income for the year was $83 million, or $1.32 per share, an increase of 25 percent over 2007.

GAAP net income for fiscal 2008 was $83.0 million, or $1.32 per diluted share compared to GAAP net income of $66.6 million, or $0.97 per diluted share, for fiscal 2007. GAAP net income grew 25 percent on a year-over-year basis and GAAP EPS grew 36 percent on a year-over-year basis.

Analysts have been bullish on Netflix, which is finding that a sluggish economy is prompting budget-conscious consumers to find ways to be entertained at home. On a call with analysts, CEO Reed Hastings said that the impact of the recession remains unclear but that "streaming is energizing our growth" and that rentals of Blu-Ray DVDs appear to be the sweet spot of the DVD-rental business. In the last quarter, 700,000 subscribers rented Blu-Ray DVDs.

In a note released last week, Citi analyst Mark Mahaney said Netflix was "far and away" one of the "Top ‘09 Stocks Based On Our Defensive/Economic Factors." In his note, he wrote:

NFLX ranks # 1 because it offers a low cost/high value subscription model in a segment (Filmed Entertainment) that is more “hitical” than cyclical, and has no International Exposure (near-term a positive, long-term a negative) and a low Contribution Margin biz model.

Netflix has been aggressive about launching and marketing alternative services to its DVD-by-mail service, including its integration into other living room devices, such as Roku, XBox 360 and TiVo, as well as its online download service that allows users to rent and watch movies from their PCs or Macs, (or TVs that are connected to a computer.)

The space is starting to fill in with up-and-comers, including Vudu, which claims the largest online catalog of HD movies. But Netflix, like Blockbuster, is ahead of the game with - if nothing else - brand equity and an established customer base that finds value in Netflix. Even Apple, which rents movies via iTunes, said it has seen recent interest in online movie rentals via Apple TV, though noted that the living room product is still "a hobby."

The company noted that some customers seem to be transitioning from DVD to streaming but that it was too early to say if it was a trend that would continue and at what pace. If the trend does take off, then expenses - notably packaging of DVDs and postage costs - could be impacted.

Also see: Amazon, Netflix, Priceline: Are they really recession resistant? Vudu takes HD lead; enough to stay alive?

Looking ahead, the company said it expects revenue of $387 million to $393 million with adjusted net income of $15 million to $20 million and an eps of 25 cents to 33 cents per share. It expects to end the quarter with 10.1 to 10.3 million subscribers. For the full year, it expects revenue of $1.58 billion to $1.635 billion and a net income of $88 million to $98 million and eps of $1.43 to $1.59 per share.

Churn for the fourth quarter was 4.2 percent, up slightly from 4.1 percent in last year's fourth quarter. It includes free subscribers as well as paying subscribers who elect not to renew their monthly subscription service during the quarter.

Shares of Netflix were down slightly in regular trading, closing at $30.15. Shares were on the rise in after-hours trading, however, up more than 7 percent.