Subs spur Netflix prosperity

Netco wows Wall Street with new numbers

Blockbuster and Amazon are turning up the heat, but Netflix is just turning a profit.

The online vid rental firm registered net income of $4.4 million after losing nearly $9 million in the first quarter last year.

But it was subscriber growth that really rang Wall Street’s chimes; Netflix gained about 700,000 new customers in the frame.

The company also slightly lowered churn, the measure of subscribers dribbling away from the service, to 4.1%, from 5% last year.

Predictions for the coming year include subscriber growth to as high as 6.3 million, on the road to the company’s target of 20 million subs.

On a call with analysts, execs took a shot at Blockbuster, saying they beat the vidtailer by 500,000 new online subs in the quarter, despite an aggressive Blockbuster marketing campaign that included a Super Bowl ad.

But CEO Reed Hastings said the company continues to key on physical stores. He offered an apocalyptic note when he said he believes the company’s gains and market forces are “leading us closer to the tipping point when the physical rental chains begin mass closures.”

Numbers — which included a 47% jump in revenue to $224 million –topped the company’s own estimates, which forecast a profit of only about $2 million and even suggested the company could run in the red. The numbers also beat Wall Street predictions, and Netflix stock jumped in after-hours trading by roughly 6%.

Analysts were impressed with the number of new customers, with one analyst noting the company “underspent on marketing but overdelivered on subscriber growth.”

Quarter was a busy one for Netflix. It initiated a patent lawsuit against Blockbuster over its method of queuing and shipping DVDs, but went on the defensive as Amazon announced it would start a downloading service in the U.S.

Netflix also is facing an onslaught from studios, who have ramped up their own downloading efforts through CinemaNow and Movielink.

But Hastings took the cautious route and hedged on the subject of Netflix’s download plans. He said only that sometime before the end of the year, the company would “communicate a clear time frame for launching an option of Internet delivery.”

Hastings also was conservative about the company’s distribution ambitions; despite the hiring of former Miramax exec Bahman Naragi last week, the goals, he said, are “fairly modest at this point.”