Netflix’s Quarterly Results

Netflix (NASD: NFLX) reported quarterly earnings after the bell today. Here is Martin Peers’ “Heard on the Street” column (I or one of my investment vehicles may be short NFLX):

Screening Netflix’s Numbers


Netflix Inc. (NFLX) signaled Wednesday that it was ready to pick a fight with the cable and phone companies that help get its streaming video service to subscribers. But investors shouldn’t get distracted.

Any such dispute is sure to fuel the longstanding debate about net neutrality. Netflix complains that some Internet providers charge it or its partners to carry its streaming content into homes, which it says is “inappropriate.” Cable and phone companies that provide Internet access also double as video providers, a business threatened by Netflix’s success with streaming. Indeed, just how successful was underlined by Netflix’s disclosure it passed the 20-million-subscriber level at the end of the fourth quarter.

But Netflix’s fourth-quarter results also reflected a number of worrying trends. While the company added 5.6 million gross subscribers, double the rate a year earlier, the percentage of free subscribers leapt to 8.7% from 3.1%. Meanwhile, average monthly revenue from each paying subscriber fell 11%.

Netflix’s streaming-content costs also are rising sharply, as was to be expected from the spate of deals done in recent months. Streaming-content library costs jumped to $174 million in the quarter, from $22.7 million a year earlier.

Meanwhile, the company signaled that next year it would stop disclosing gross subscriber additions and related metrics. As Netflix’s growth proves more challenging, one thing the company shouldn’t do is clam up. 

Write to Martin Peers at

The shorts are going to be trampled tomorrow if after-hours pricing today is any indication. If Peers is correct, it is probably only temporary.

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