Netflix reported Monday that its fourth-quarter profit rose 45 percent on the strength of lower marketing costs and the growth of its Internet streaming service.
Netflix CEO Reed Hastings credited the company's "Watch Instantly" streaming feature with fueling subscriber growth.
"It's very clear that streaming is energizing our growth," Hastings told analysts during a conference call.
For the quarter ended December 31, the company reported that it earned $22.7 million, or 38 cents a share, compared with $15.7 million, or 23 cents a share a year ago. Revenue at the Los Gatos, Calif.-based movie rental service increased 19 percent to $359.6 million from $302.4 million a year earlier.
Analysts on average had expected fourth-quarter net earnings of 34 cents per share, excluding stock-based compensation, on revenue of $354.3 million.
Netflix recorded about 9.39 million subscribers at the end of the fourth quarter, a 26 percent increase over the 7.48 million customers it reported for the year ago period. The company also said it expects to finish 2009 with 10.6 million to 11.3 million total subscribers.
The company's fourth-quarter margins grew to 35.2 percent from 33.8 percent a year ago as marketing costs declined. Netflix reported that its customer acquisition costs were $26.67 per each subscriber, down from $34.58 a year earlier.
Meanwhile, cancellations increased slightly, to 4.2 percent, compared with 4.1 percent a year earlier.
The company also announced a $175 million stock buyback program for 2009.
Shares of the company's stock jumped 7.4 percent to $32.38 in after-hours trading.
Netflix plans to stop selling DVDs that were rented by subscribers, another step toward expanding its subscription focus from DVDs rented by mail to include movies streamed over the Web.
In a Netflix blog posting Monday, the company announced that it would discontinue sales of previously viewed DVDs on November 30:
As you know, our core business is delivering great movie rentals to you on DVD by mail and instantly to the computer and TV, so we've decided it makes sense for us to focus exclusively on that. This means we will stop selling previously viewed DVDs through the Web site. We're sorry for any inconvenience for those of you who regularly purchase DVDs at Netflix, but we're excited about being able to spend the extra time focusing on continually improving our core rental business for you.
Netflix announced on Friday that it had completed its first phase of beta testing of its new "Watch Instantly" movie-streaming player and was expanding access to include Macintosh-owning subscribers.
The company also said last week that it would be using Microsoft's Silverlight software to deliver streaming movies not only to PCs, but also to Intel-based Macs. The new Netflix player takes advantage of Play Ready DRM, which is built into Silverlight, for the playback of protected content on both Windows-based PCs and Macs. According to Netflix, this had not been possible with previous technologies.
Netflix isn't going to end its DVD rental program on November 30, so it's likely the company will sell its inventory of DVDs rented after that date to a third-party DVD dealer. While the move appears largely symbolic, it's a small step toward expanding the corporate--and public--focus from DVD rentals to movie streaming.
However, subscribers who offered feedback on the blog were overwhelming opposed to the move.
"I'm very disappointed," wrote one subscriber. "I use this service all the time and it's one of the main reasons I use Netflix. I'd hate to go back to Blockbuster..."
Netflix has expanded its "Watch Instantly" movie-streaming player to include Macintosh-owning subscribers.
The company announced on its blog Friday that it is past its first phase of beta testing and invited subscribers who wanted to opt in to do so. But the company had a few warnings for prospective users:
• There may be bugs. We are logging all errors, but if you run into problems, you can help out by posting details here in the blog comments.
• Not all movies are available to watch with Silverlight. You may notice errors or lower than normal quality when watching certain titles.
• Our new player works on PCs and Intel-based Macs.
• Windows users should be aware that if you opt in, you will need to use Silverlight on all the machines you use to watch instantly.
The company announced on Monday that it would be using Microsoft's Silverlight software to deliver streaming movies not only to PCs, but also to Intel-based Macs. The new Netflix player takes advantage of Play Ready DRM, which is built into Silverlight, for the playback of protected content on both Windows-based PCs and Macs. According to Netflix, this had not been possible with previous technologies.
Netflix members should expect a "faster, easier connection, and a more robust viewing experience with Silverlight," the company said. One of the enhancements is in timeline navigation, which will purportedly improve the use of fast-forwarding and rewinding.
The company also said in the blog post that it has expanded the number of movies and television programs available through the "Watch Instantly" service, but the company still has a long way to go before the service can compete with its DVD selection.
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