) surged 19.08% in after hours trading after the streaming
service provider reported better-than-expected first quarter 2013
results. Non-GAAP earnings per share (excluding loss on
extinguishment of debt) of 31 cents were significantly ahead of
the Zacks Consensus Estimate of 18 cents per share. On a
year-over-year basis, reported earnings also improved from a loss
of 8 cents per share.
Total revenue increased 17.7% year over year to $1.02 billion
and was marginally ahead of the Zacks Consensus Estimate. Robust
subscriber additions in Netflix's streaming business (both
domestic and international) led to the better-than-expected
Notably, Netflix's paid streaming subscriber base (both
domestic and international) increased 40.2% on a year-over-year
basis to 34.2 million. Total streaming subscriber base increased
37.2% to 36.3 million.
At the end of the first quarter, revenues from Netflix's
domestic streaming business increased 26.0% from the year-ago
quarter to $639 million (management guidance was $633.0
million-$641.0 million). Revenues from international streaming
business were up a staggering 230.2% year over year to $142
million (management guidance was $132.0 million-$144.0
However, Netflix's domestic DVD business was a disappointment
as it continued to slump in the first quarter as well. At the end
of the quarter, revenue from the segment was down 23.8% year over
year to $243 million. Total subscriber base declined to 7.9
million from 10.1 million in the previous year quarter.
Operating profit for the quarter was $31.8 million as opposed
to an operating loss of $1.9 million in the year-ago quarter,
primarily due to a higher revenue base.
Expenses were up 13.8% year over year, primarily due to higher
cost of revenue (16.5% year over year), technology expenses
(11.1% year over year) and general and administrative expenses
(25.8% year over year). Marketing expenses were down 0.6% year
over. The company reported certain reclassifications of marketing
expenses to general and administrative.
Non-GAAP net income for the quarter was $18.7 million compared
to a loss of $4.6 million reported in the year-ago quarter.
On GAAP basis, the company reported a profit of $2.7
Exiting first quarter 2013, Netflix had $1.03 billion in cash
and cash equivalents (including short-term investments) compared
with $748.1 million in the previous quarter. Long-term debt was
at $500.0 million at the end of first quarter 2013.
In February, Netflix raised $500 million in 5.375% notes
spanning 8 years and utilized $225 million of the fund to repay
2007 8.5% notes. Moreover, the company is expected to convert the
2011 TCV $200 million convertible notes into the 2.3 million
For the forthcoming quarter, management forecasts EPS between
23 cents and 48 cents. The Zacks Consensus Estimate for second
quarter 2013 is pegged at 27 cents. Net income is expected to be
in the range of $14 million to $29 million.
Domestic and International streaming revenue is expected to be
in the range of $665.0 million-$673.0 million and $156.0
million-$170.0 million, respectively.
Management expects total subscribers in the domestic streaming
market and in the international streaming market to be in the
band of 29.4 million to 30.05 million and 7.3 million to 7.9
The company is also set to start a 4-stream plan, with
subscription cost of $11.99 for its U.S. subscribers in the near
Netflix reported a better-than-expected quarter on the back of
higher subscription additions and provided an encouraging
guidance. Moreover, new streaming content additions through
licensing deals will help the company to counteract stiff
competition from other service providers such as
). However, the company's continuous subscriber loss in its DVD
business can be a headwind going forward.
Currently, Netflix has a Zacks Rank #3 (Hold).
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