Netflix Adjusts Fourth-Quarter Forecast
Posted on: Tuesday, 7 October 2008, 06:45 CDT
Netflix, an online DVD rental company, cut its fourth-quarter forecast, driving down its shares by 11 percent. The company is blaming its slow subscriber growth on current U.S. economic problems.
The announcement surprised many who believed Netflix would remain safe from economic woes.
The company, who competes with Blockbuster Inc, Amazon.com, and Apple Inc, lowered its fourth-quarter revenue outlook overshadowing its higher earnings-per-share forecast for the same quarter.
"We see this as an incremental negative for the bull-case on Netflix shares, which contends that the company is relatively insulated from a slowdown in the broader economy, since DVD-by-mail consumption should at least hold up, if not increase, as cash-strapped consumers increasingly stay home," said Barton Crockett, a J.P. Morgan analyst.
Barry McCarthy, chief financial officer for Netflix, said the forecast was due to unusually weak subscriber growth in August.
"In September, the business regained momentum with results slightly below original expectations, likely due to the economic climate," McCarthy said.
Netflix finished the third quarter with nearly 8.672 million subscribers, landing just below its estimate of 8.675 to 8.875 million subscribers. The company believes revenue from the third quarter will meet estimate goals. They will release new reports on October 20.
Netflix is now estimating fourth quarter revenue to land between $353 million to $359 million, which is lower than previous estimates which went as high as $367 million.
The company does expect share earnings to increase to 30 cents to 38 cents a share, which is better than previous estimates of 29 cents to 37 cents.
Crockett believes the lower subscriber growth could be due to exceptional growth the company saw last year when Blockbuster quit promoting a competing service.
Analysts believe Blockbuster may have better luck in the current economic climate. They believe the company is in better position due to its ability to offer products in various ways, and without subscriptions.
In August, Blockbuster warned of lower than normal third quarter revenue due to the Olympics, but have increased its overall 2008 outlook, predicting revenue will finish between $300 million and $315 million. Unfortunately, after interest, taxes, amortization, and depreciation, Blockbuster's net income will be $21 million to $36 million.
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Source: redOrbit Staff & Wire Reports
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