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Video Service Netflix Rebounds From Loss

October 16, 2003|From Bloomberg News

Netflix Inc., the biggest Internet-based home-video rental service, said Wednesday that it earned $3.3 million in the third quarter, rebounding from a loss a year earlier, as it signed up more new subscribers. Sales jumped 77%.

Net income of 10 cents a share contrasted with a loss of $2.85 million, or 13 cents, a year earlier, the company said. Sales at the Los Gatos, Calif.-based company rose to $72.2 million from $40.7 million.

Netflix ended the quarter with 1.29 million subscribers, 74% more than it had a year earlier, the company said two weeks ago. Netflix is taking customers from Blockbuster Inc. and other video rental stores by charging a flat monthly fee to let customers mail-order digital video discs through its Web site and keep them as long as they want without paying late fees.

"It seemed like a very strong quarter," said Derek Brown, an analyst at Pacific Growth Equities in San Francisco. "Customer acquisition costs were substantially lower than expected." He rates Netflix shares "overweight."

Netflix shares Wednesday fell $2.52 to $44.70 in Nasdaq Stock Market composite trading. The stock has risen more than fivefold in the last year.

Subscriber acquisition costs fell to $31.81 from $33.57 a year earlier, Chief Executive Reed Hastings said. Churn, or the rate at which subscribers drop the service, fell to 5.2% in the third quarter from 7.2% a year earlier.

"We're getting a really strong reputation among consumers," Hastings said in a telephone interview. "Word of mouth helps us tremendously."

Netflix raised its forecast for fourth-quarter sales and profit. It now expects results to range from a net loss of $200,000 to net income of $2.3 million on revenue of $77 million to $81 million. The previous forecast called for a loss of $2.5 million to net income of $1.5 million on revenue of $74 million to $80 million.

Excluding its expenses to pay employees in stock, Netflix said it would have earned $6.1 million, or 19 cents a share. That topped the average estimate of 10 cents a share from five analysts surveyed by Thomson First Call. Revenue exceeded the average estimate of $69.7 million.

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