Netflix ups outlook; Customer acquisition costs fall

Netflix said Friday it ended the second quarter with more than 8.4 million subscribers, up 25 percent from a year ago, and spent less money acquiring those customers. Those two factors added up to better than expected quarterly results and an improved outlook.

The company has been on a tear of late inking deals that lay the groundwork for its future business model--digital distribution instead of DVDs via mail--and acquire customers in bulk. To wit, Netflix recently launched the Netflix Player by Roku--a $99 device that can stream movies to subscribers and

inked a pact to embed its service on the Xbox 360.

Netflix reported second quarter net income of $26.6 million, or 42 cents a share, on revenue of $337.6 million, up 11 percent from a year ago (statement). Excluding items Netflix reported earnings of 45 cents a share. Wall Street was looking for earnings of 40 cents a share.

Also see: Photos: Cracking open the Roku Netflix Player

Meanwhile, Netflix also upped its outlook. It projected third quarter earnings of 26 cents a share to 34 cents a share on revenue of $343 million to $348 million. Ending subscribers are projected to be 8.67 million to 8.87 million. In the fourth quarter, Netflix projected earnings of 29 cents a share to 37 cents a share on revenue of $357 million to $367 million. And for the year Netflix predicted earnings of $1.16 to $1.29 a share on revenue between $1.36 billion and $1.38 billion. All of those projections were ahead of estimates.

By the numbers:

• Subscriber acquisition costs were $28.95 per gross subscriber addition compared to $44.02 a year ago and $29.50 in the first quarter.
• Churn was 4.2 percent, down from 4.6 percent a year ago, but up from 3.9 percent in the first quarter.
• Gross margins were 31.8 percent, down from 35.2 percent a year ago and flat with the first quarter.
• Fulfillment expenses were up to $36.3 million, up from $29.85 million in the same quarter a year ago. Marketing expenses were down to $40 million in the second quarter, compared to $45.25 million a year ago.