Netflix surprised Wall Street on Monday with news of a small profit, proving it can fend off tough competition from Blockbuster and sending its stock soaring 12% in after-hours trading.
After guiding toward a net loss between $2.2 million and $7.2 million due to a price cut it enacted late last year to deal with Blockbuster’s aggressive entry into the market, Netco delivered a net profit of $5.7 million on revenue of $164.5 million, up 37% from a year ago.
Subscriber growth was in line with estimates, with the addition of 178,000 net subs coming in to give Netflix a total of 3.196 million.
Company is projecting it will reach its previously stated goal of 4 million subs by the end of this year along with a small profit of between $2.4 million and $11.9 million. Blockbuster execs have said they hope to reach 2 million subs by early next year.
Netflix charges $17.99 per month for a plan including three DVDs at a time while Blockbuster’s similar plan costs $14.99. But Netflix has been more heavily promoting an option to rent one movie at a time for $9.99, the same price as Blockbuster.
That plan and other competitive positioning allowed Netflix to lower its churn, or the percentage of subscribers who leave, to 4.7%. When Blockbuster entered the market last year with a lower price, Netflix’s churn got as high as 5.6%.
When Netflix cut its price and guidance last year, CEO Reed Hastings said one of the reasons was the pending entry of Amazon.com into the market, a prediction that hasn’t come true.
Company is now projecting similarly strong performance in the current quarter, with guidance calling for net income of $4.5 million to $8 million on revenue of between $172.5 million and $176.4 million. Subs are expected to grow to between 3.35 million and 3.5 million.
Netflix shares hit $19 in after-hours trading.