Netflix earnings: upbeat for 2011, focused on streaming

Netflix today reported strong earnings for its fourth quarter, well exceeding Wall Street's estimates despite falling short on revenue expectations. And a rosy outlook for 2011 sent shares soaring in after-hours trading.

Netflix today reported strong earnings for its fourth quarter, well exceeding Wall Street's estimates despite falling short on revenue expectations. And a rosy outlook for 2011 sent shares soaring in after-hours trading.

For the quarter, the company reported net income of $47 million, or 87 cents per share, a 55 percent increase over the same quarter a year earlier and well above analysts estimates of 71 cents. Revenue came in at $596 million, a 34 percent jump from a year ago but short of the $598 Wall Street had been expecting.

The company added 3.08 million subscribers, taking it past the 20 million mark during the quarter. The company said it expected to end the first quarter with 21.9 million to 22.8 million subscribers in the U.S.

In a letter to shareholders, the company highlighted the success of the new pure-streaming plan, priced at $7.99 per month, as well as the price increase on the combination streaming-DVD plans. The letter read:

...our pure streaming plan has a great deal of consumer appeal. More than one third of new subscribers are signing up for the pure streaming plan, and we expect that percentage to grow over time.  The balance of new subscribers primarily takes our $9.99 1-DVD combination plan. Very few of our existing subscribers are downgrading to the pure streaming plan.

The company also noted that, while streaming is growing at a much faster rate than DVD, the DVD business will be around for many years to come - and there are very real costs involved with that. The company expects DVD shipments to decline this year and also sees video store customers migrating more toward the $1-a-day kiosks such as Redbox for their DVD rentals and choosing Netflix for streams.

It's worth noting that the company is also doing its part to enhance the streaming side of the business and discourage DVD rentals, including the decision to remove "Add to DVD Queue" buttons on apps. The company also noted that its efforts are around working with content providers and studios to build up the offerings on the streaming side of the catalog and to enhance the user interface for the apps that accessible over gaming devices, set-top boxes and mobile.

Looking ahead, the company is forecasting domestic revenue between $684 million and $704 million, plus an additional $10 million to $13 million in international revenue, blowing away analysts' estimates of $671 million. Earnings per share for the quarter are expected to be between 90 cents and $1.13, also above estimates of 87 cents.

The company said it expects to expand its international market beyond Canada this year.

Shares of Netflix were down about 2 percent in regular trading, closing at $183.03. But shares soared in after-hours trading, gaining nearly 7 percent.