Netflix, Inc.
(NDAQ: NFLX) shares spiked more than ten percent today after the
company raised its first quarter and full year outlook on the heels of
interest income and the completion of its $100 million stock buyback
program. The online movie rental company also boosted its subscriber
targets despite increased competition from companies like Amazon.com,
Inc. (NDAQ: AMZN), Apple Inc. (NDAQ: AAPL) and its main competitor
Blockbuster Inc. (NYSE: BBI). So, is this a trend that the company can
maintain or a simple one-time blip amid a declining industry?
Netflix continues to benefit from a very favorable competitive
landscape as well as improved cost-efficiencies across subscriber
acquisition and overall marketing expenditures. This landscape will
likely intensify in the comping year with digital downloads, but these
offerings shouldn’t impact the DVD rental market for at least another
few years. Netflix also announced a new popular program that allows
subscribers unlimited streaming of about 6,000 movies and television
episodes from their computer at no additional charge - a service that
is quickly gaining popularity.
Netflix announced that the two main factors behind the raise in its
net income was favorable interest income as well as its share buyback
program. The movie rental company completed its share $100 million
share buyback program announced earlier this year in record time. It
repurchased 3.8 million shares of common stock at an average price of
$25.96 per share, net of expenses. Meanwhile, the firm received higher
interest income from its investments not related to the activities the
company. It is unclear exactly how hight this impact was, but it will
be interesting to see in their next quarterly report.
In the end, Netflix is proving that it has some staying power versus
its steep competition. The guidance today not only showed increased
operating efficiency in the fourth quarter (profits out-pacing
revenues), but also a number of new subscribers that will help its
bottom line. This company was a pioneer of online movie rentals and
continues to impress investors as it works on new ways to compete
against brand new competition from some of the world’s largest tech
giants. Combined, these factors make NFLX a stock worth watching!
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