Netflix (NFLX) Is Set to Soar

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NFLX Netflix Inc.

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June 15, 2009

In an environment where consumers are being squeezed by higher prices everywhere, Netflix (NFLX) is a place they can turn to for cheap entertainment.

Netflix, the online movie rental company, has taken the movie-watching experience to a whole new level, one that doesn't involve getting dressed and heading to the local video store to rent the latest releases. Instead, Netflix delivers DVDs straight to your mailbox. What's more, the company now offers instant access to many movies over the Internet so you don't even have to wait for the postman.

Netflix is the largest online entertainment subscription service in the U.S., providing more than 10 million subscribers with access to 100,000-plus movies and television shows. Netflix doesn't charge late fees or have due dates, and the company's service employs user ratings to predict individual preferences and make movie recommendations.

In the past several years, Netflix's discs-by-mail service has cut deeply into the market share of traditional video-rental chains like Blockbuster (BBI). With unlimited plans starting at $8.99 a month, Netflix customers can rent at least one DVD at a time and stream as many movies as they want.

Netflix has a major sales advantage due to the fact that many cable companies and satellite services don't even come close to offering the vast array of high-definition movies and television shows that Netflix offers. The company has proven to be recession-resistant and continues to generate new subscriptions.

Netflix -- No Recession Here

For the first quarter, Netflix's earnings rose an astounding 76.2% to $22.4 million or 37 cents a share compared with $13.3 million or 21 cents a share in the same quarter a year ago.

During the same period, its sales rose 21% to $394 million. Wall Street was expecting earnings of 33 cents a share on sales of $391.1 million, so the company posted a 12.1% earnings surprise and a slight sales surprise. Netflix ended the first quarter with about 10.3 million subscribers, up 25% from the 8.24 million customers it had at the end of the first quarter of 2008.

Looking forward, for the second quarter, the company still expects sale of $403 million to $409 million and a total of 10.4 million to 10.6 million subscribers by June 30. The next earnings report should come in about five weeks.

The company also raised its full-year sales outlook to a range of $1.63 billion to $1.67 billion from its previous forecast of $1.58 billion to $1.63 billion. Netflix now anticipates that it will end 2009 with 11.2 million to 11.8 million customers, up from its earlier estimate of 10.6 million to 11.3 million.

This is a great time to add shares of Netflix to your portfolio. The stock has pulled back over 20% from its 52-week high, reached in April.

I give Netflix a solid A grade, making it a strong buy.

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