Netflix, Inc. (NASDAQ: NFLX) is scheduled to release its second-quarter earnings after the closing bell on Monday, July 25, 2011. Analysts, on average, expect the company to report earnings of $1.11 per share on revenue of $790.49 million. In the year ago period, the company reported earnings of 80 cents per share on revenue of $519.82 million.
Netflix, Inc. provides online movie rental subscription services in the United States. The Company’s subscribers can watch unlimited movies and television episodes streamed to their televisions and computers, and can receive DVDs delivered to their homes. Over the years, Netflix has shifted its business model from a traditional rental model to offering many subscription options at various price points and added streaming a few years ago. It was originally seen as a niche add-on for die-hard techies, but now streaming accounts for the majority of Neflix viewing.
In the preceding first quarter, the Los Gatos, California-based company's net income was $60.2 million, or $1.11 per share, compared to $32.3 million, or $0.59 per share, in the year-ago quarter. Revenue increased 46% to $718.55 million from $493.67 million in the same quarter last year. Analysts on average, had expected a profit of $1.07 a share on revenue of $705.7 million.
At its last earnings call in April, the company said that it anticipates second-quarter net income to be in the range of $50 million to $62 million or $0.93 to $1.15 per share. Revenue for the second quarter reported as domestic and international is expected to be in the range of $762 to $778 million and $16.0 million to $20.0 million, respectively. Management expects subscribers in the domestic market to be between 24.0 million and 24.8 million. Subscribers in the international market are estimated to be between 0.9 million and 1.1 million. Netflix estimates domestic operating income to be between $100.0 million and $116.0 million, while the international business is expected to incur losses in the range of $14.0 million to $ 10.0 million. Netflix projects the domestic operating margin to be approximately 14.0% and expects the Canadian operations to have a positive impact on operating margins starting from the third quarter of 2011. In the latter half of 2011, management expects international operations to incur operating losses of approximately $50 million to $70 million.
Netflix has become the dominant player in home-video rentals, offering unlimited one-at-a-time DVD rentals by mail or instantly streamed movies via the Internet. 2010 was a great year for Netflix in terms of subscriber additions. For the whole year, the company added about 7.74 million subscribers amounting to a total 20 million at the year end, representing 63% growth over 2009. Some forecasts estimate that Netflix will boast 55 million subscribers by 2015.
Netflix is focused on becoming an entertainment powerhouse by content additions to its already vast and varied library, through partnerships with big production houses like Paramount Pictures and Twentieth Century Fox, to name a couple. these content additions will enable Netflix to reduce its dependence on cable TV operators and also provide the necessary competitive edge over its peers in the emerging market of online video streaming. Netflix has been gaining rights of few original series and its partnership with the big houses reflects the financial prowess of the company. These content additions will enable Netflix to reduce its dependence on cable TV operators and also provide the necessary competitive edge over its peers in the emerging market of online video streaming. Netflix has been gaining rights of few original series and its partnership with the big houses reflects the financial prowess of the company.
Netflix intends to expand its business into new territories going forward. Recently, the company announced its plan to launch Internet movie subscription service in Latin America and in the Caribbean. This would mark Netflix’s second venture outside the United States, after it had started its service in Canada last September. Netflix subscribers, in countries such as Mexico, South and Central America and the Caribbean, will be able to stream a wide range of movies and popular TV shows on any gadgets that can be connected to the Internet. The service will be available in Spanish, Portuguese and English. However, the company has not disclosed any pricing plans or specified any date for the availability of the service.
Over the last 12-18 months, the company had been shifting away from its original DVD rental business and primarily focusing on online streaming content. This was primarily due to the fact that the rental DVD service is a low-margin business compared to online streaming given the high postage and sorting infrastructure costs. The company recently announced new subscription plans for its DVD-by-mail and streaming customers. Under the new plan, customers who seek to subscribe for both the DVD-by-mail and streaming services will have to pay $16.00 per month for unlimited access. Previously, Netflix used to charge $10.00 a month for the bundled offering. Netflix announced that the unlimited streaming only plan will remain at $8.00 per month. However, to get an add-on DVD along with the streaming service, customers will have to pay an additional $8.00. Previously, the company used to charge $2.00 for the same. Further, customers who want to hire two DVDs will have to pay an additional $12.00 per month while to hire three the customer has to pay $16.00 per month.
In terms of stock performance, Netflix shares have gained nearly 55 percent since the beginning of the year. Few industry watchers believe that Netflix's's high valuation is a potential risk factor. It is now being argued that with expectations running so high, the company risks disappointing investors and analysts. Also, Netflix might face competition from Amazon (NASDAQ: MZN) Prime video streaming service that was launched last quarter. Apart from the subscriber momentum, investors should look out as to where Netflix’s content acquisition costs are headed. Netflix’s expansion in future is likely to come at a higher cost compared to past. Shares of the company are currently trading at roughly 41.89 times consensus 2012 EPS estimates.
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