Friday, January 25, 2008

Netflix: Video Stores On The Way Out

When you compare Netflix's (NFLX) recent results to those of Blockbuster (BBI), you can only shake your head.

Netflix said Wednesday that its fourth-quarter profit rose 6% as subscribers increased. Net income was $15.8 million, or 24 cents a share for the quarter ended Dec. 31, compared with a profit of $14.9 million, or 21 cents a share a year earlier. Revenue rose to $302.4 million from $277.2 million, an increase of 9%. Subscriber acquisition costs in the quarter were $34.60 per gross add, down from $37.91 in the third quarter.

Analysts were expecting a profit of 14 cents a share on revenue of $301.7 million. Subscribers rose to 7.48 million from 6.32 million a year earlier.

On the conference call CEO Reed Hasting said, "For 2008, we expect to have more net adds than 2007, with a positive factor being less aggressive competition from Blockbuster Online ...."

He continued "Blockbuster Online is still active and still has several million subscribers. While they appear to have shifted to valuing profit over growth, they can change their mind again at any time. We are widening the gap between us however, and any further attack is unlikely to be as painful as their 2005 or 2007 thrusts."

Even he does not expect Blockbuster to get its act together online for the next year

Since December 2005 the subscriber base has grown by 79% to 7.5 million subscribers., revenue has grown by 77% to $1.2 billion and they have nearly doubled free cash flow to $46 million.

It would appear based on ALL evidence to date Netflix took Blockbusters best shot (twice) and has come out the clear victor. Now it is on the the online game. Hastings did say that they are seeing good business from their younger subscribers in downloads and should in 2008, have the downloads ready for the Mac, high-definition DVD players, to game consoles and to dedicated Internet set-top boxes broadening the audience further.

A note: Not once in the entire call did they once mention "getting into the video store game". The reason? It is over...

As a matter of fact, Hastings actually said "Unless video stores are reinvented, it may be that in five years, there are tens of thousands of kiosks, millions of online DVD renters and very few video stores."

I have been saying this since last summer, get rid of the stores Blockbuster!!

Disclosure ("none" means no position): None

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