Netflix 4Q profit up 45 pct

By Michael LiedtkeI, AP Technology Writer

SAN FRANCISCO (AP) — Netflix Inc.'s fourth-quarter profit climbed 45 percent to surpass analysts' estimates Monday, propelled by the widening appeal of its relatively inexpensive DVD rental and Internet streaming service during a budget-crimping recession.

The results, along with an optimistic forecast for the current quarter, drove Netflix shares up by more than 8 percent in extended trading.

The Los Gatos, Calif.-based company added 718,000 customers in the final three months of 2008, more than doubling the growth envisioned by management. The surge left Netflix with just under 9.4 million customers through December, a 26 percent gain from 2007 that suggests more people are looking for ways to entertain themselves at home in the worst recession since the early 1980s.

Netflix, launched a decade ago, has emerged as an enticing option by offering subscription plans that charge $9 to $17 per month to rent DVDs through the mail and watch a more limited selection of other video over high-speed Internet connections.

"We are very fortunate to have a great value proposition," Reed Hastings, Netflix's chief executive, said in an interview Monday.

The allure is becoming so strong that Netflix is spending substantially less to attract new customers. Netflix's cost per new subscriber averaged $26.67 in the quarter, a 23 percent drop from the same juncture in 2007.

Those factors helped Netflix earn $22.7 million, or 34 cents per share, in the fourth quarter. That compared with net income of $15.7 million, or 23 cents per share, at the same time in 2007.

Analysts, on average, had projected earnings of 34 cents per share, according to Thomson Reuters.

Revenue in the period climbed 19 percent to $360 million, about $6 million above analyst estimates.

Netflix believes it's still gaining momentum, even as the economy deteriorates. Management predicted it will attract 700,000 to 900,000 more subscribers during the current quarter, yielding earnings ranging from 25 cents to 33 cents per share on revenue of $387 million to $393 million.

The average analyst estimate for the first quarter had stood at 30 cents per share on revenue of $371.5 million.

Netflix shares surged $2.55, or 8.5 percent, in extended trading after finishing Monday's regular session at $30.15, down 29 cents.

By the end of 2008, Netflix expects to have anywhere from 10.6 million to 11.3 million customers.

Many of the current subscribers are becoming more intrigued with an Internet streaming service that Netflix unveiled two years ago to supplement its DVD rental service.

While the DVD library includes all the latest releases, the Internet streaming services offers more than 12,000 older titles. But the streaming option has been helping to attract more customers as Netflix has arranged to have the service piped through a variety of devices that are connected to television sets.

Microsoft Corp.'s XBox video game console, some Blu-ray players and a $99 gadget made by Roku Inc. all have made it easier to watch Netflix's streaming service.

"It's very clear streaming is energizing our growth," Hastings told analysts during a conference call.

Netflix intends to spend heavily to license even more content for the streaming service this year, hoping the payoff will come in the form of more new subscribers and lower mailing costs as customers request fewer DVDs each month.

The streaming service doesn't trigger any additional customer fees, but Hastings said the company eventually may create an Internet video plan tailored exclusively for consumers who don't want watch DVDs.

Hastings believes DVD rentals will remain Netflix's main attraction for several more years. To accelerate DVD deliveries, Netflix will begin experimenting with processing and mailing rental requests on weekends for the first time, Hastings said.

For all of 2008, Netflix earned $83 million, or $1.32 per share, on revenue of $1.36 billion. That compared with a 2007 profit of $66.6 million, or 97 cents per share, on revenue of $1.21 billion.