One of the most controversial stocks, Netflix (NFLX, Financial), with all the ups and downs in its price over the years, has risen sharply in early trading Wednesday, up 13% to above $107, after the company released an earnings report which beat the estimates. Then it settled down to $95.04 at the closing bell, with the upside of 2.56%.
During the fourth quarter, the company reported that it got more U.S. subscribers than expected. Members streamed more than 2 billion hours of Netflix, averaging 30 hours per member per month on average. The company has shown a surprising domestic growth in streaming members, up 220,000 to 21.67 million members in the last quarter of the year. There were also fewer streaming cancellations and lower migration to DVD-only plans leading to the out-performance in the streaming members.
This domestic streaming segment delivered $52 million in contribution profit, or 10.9% contribution margin, whereas its target contribution margin stayed at 8%. For the international streaming, this is the fifth quarter since the launch, the company reached 1.9 million members in this quarter.
In contrast, the DVD segment has declined to 11.2 million due to the price changes, so the hybrid members prefer the streaming only plan over the higher-priced hybrid plan. Meanwhile, the company believes that for customers with DVD needs (ones with limited broadband), its product is priced 20% lower than the company’s nearest competitor. This segment has contributed $194 million of profit for the company in the fourth quarter, with 52.4% contribution margin.
For the domestic content, NFLX has continued its investment into the streaming library in 2011, in terms of both quality and quantity, especially across on air TV, kids TV and library TV. The remaining titles of Starz would be coming off at the end of February, primarily the Encore catalog titles and the 15 current Disney Pay 1 titles. According to Reed Hastings, the significant loss in the current 15 Disney output includes Toy Story 3 and “Tangled,” which accounts for around 2% of the domestic viewing. With the Starz coming off the shelf, the replacement would be coming from Paramount with “The Adventure of Tin Tin,” “Rango” and “Hugo,” which have 11 Oscar nominations including Best Pictures. In addition, NFLX is looking forward to when DreamWorks Animation comes online in 2013 to strengthen further the streaming library.
Putting it all together, quarter four has had total revenue leaps of 47%, to $876 million, exceeding the forecast of $857.9 million, with the profit of $41 million, or $0.73 per share and this quarter performance has been resulted from the out-performance in the domestic streaming contribution profit. With a jump in revenue compared to the previous quarter, the higher subscription cost and operating expenses have led to lower net income for the previous quarter. But the yearly result, NFLX topped $231.6 million for this year versus $160.8 million, meaning $4.38 and $3.06 per share, respectively. At the current price, the market capitalization of NFLX is nearly $5 billion, valuing the company at nearly 21.6x earnings, 7.7x book value and 15.7x the operating cash flow.
During the fourth quarter, the company reported that it got more U.S. subscribers than expected. Members streamed more than 2 billion hours of Netflix, averaging 30 hours per member per month on average. The company has shown a surprising domestic growth in streaming members, up 220,000 to 21.67 million members in the last quarter of the year. There were also fewer streaming cancellations and lower migration to DVD-only plans leading to the out-performance in the streaming members.
This domestic streaming segment delivered $52 million in contribution profit, or 10.9% contribution margin, whereas its target contribution margin stayed at 8%. For the international streaming, this is the fifth quarter since the launch, the company reached 1.9 million members in this quarter.
In contrast, the DVD segment has declined to 11.2 million due to the price changes, so the hybrid members prefer the streaming only plan over the higher-priced hybrid plan. Meanwhile, the company believes that for customers with DVD needs (ones with limited broadband), its product is priced 20% lower than the company’s nearest competitor. This segment has contributed $194 million of profit for the company in the fourth quarter, with 52.4% contribution margin.
For the domestic content, NFLX has continued its investment into the streaming library in 2011, in terms of both quality and quantity, especially across on air TV, kids TV and library TV. The remaining titles of Starz would be coming off at the end of February, primarily the Encore catalog titles and the 15 current Disney Pay 1 titles. According to Reed Hastings, the significant loss in the current 15 Disney output includes Toy Story 3 and “Tangled,” which accounts for around 2% of the domestic viewing. With the Starz coming off the shelf, the replacement would be coming from Paramount with “The Adventure of Tin Tin,” “Rango” and “Hugo,” which have 11 Oscar nominations including Best Pictures. In addition, NFLX is looking forward to when DreamWorks Animation comes online in 2013 to strengthen further the streaming library.
Putting it all together, quarter four has had total revenue leaps of 47%, to $876 million, exceeding the forecast of $857.9 million, with the profit of $41 million, or $0.73 per share and this quarter performance has been resulted from the out-performance in the domestic streaming contribution profit. With a jump in revenue compared to the previous quarter, the higher subscription cost and operating expenses have led to lower net income for the previous quarter. But the yearly result, NFLX topped $231.6 million for this year versus $160.8 million, meaning $4.38 and $3.06 per share, respectively. At the current price, the market capitalization of NFLX is nearly $5 billion, valuing the company at nearly 21.6x earnings, 7.7x book value and 15.7x the operating cash flow.
