Sub boost pumps Netflix shares

Shares in the online DVD shop closed up 14% at $11.92

A little good news went a long way for Netflix on Thursday: A modest increase in subscriber estimates for the current quarter sent its shares skyrocketing more than 14%.

Online DVD rental shop said after markets closed Wednesday that better-than-expected growth in the past 1½ months has led it to raise its expected sub adds by 150,000 and revenue by $1 million.

Company brought down the high end of its net income estimate, however, due to higher marketing costs to acquire the new subs.

It’s now expecting to end the quarter with between 2.45 million and 2.65 million subscribers, revenue between $139 million and $143 million, and net income between $2 million and $5 million.

“The strategy of rapid subscriber growth we announced last month is working,” declared CEO Reed Hastings.

It was the first bit of good news in a while for Netflix, which saw its shares plunge 37% last month after it announced it would cut its subscriber price and revised financial guidance to cope with competition from Blockbuster and expected entry into the market of Amazon.com (Daily Variety, Oct. 15).

Amazon CEO Jeff Bezos, has since then said that he’s considering joining the booming online DVD rental space, but hasn’t made a decision.

Nevertheless, Netflix is focusing on adding subs to maintain its lead in the market, rather than positioning itself as a higher-quality alternative and looking to increase profits.

Analysts were by and large not impressed by the increased guidance. Alden Mahabir of Vintage Research said in a note that his firm thought initial guidance was too conservative. “We don’t see more sensible guidance as a positive catalyst,” he added.

But investors took a different view, as Netflix shares closed up 14% at $11.92.

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