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Online rental store sees higher-than-expected growth - By Meredith Amdur

Who says the video rental business is slowing down? Online DVD rental
shop Netflix saw its shares soar nearly 13% Wednesday to $50.49 when it
upgraded its fourth-quarter subscriber forecasts, due to
higher-than-expected growth for its subscription rental service. Netflix
expects to have between 1.47 million and 1.495 million subs by the end
of the fourth quarter, a slight improvement on its earlier projections
of 1.425 million-1.475 million. Better yet, company said fewer customers
are dropping out of the service, with average monthly subscriber churn
of 4.7%-5%, compared to its earlier range of 4.9%-5.4%.

Blame VHS

The steady gains come as the overall market for video and DVD rentals
fell 1.6% in the third quarter of 2003 compared with 2002, according to
research by Alexander & Associates. However, the firm notes DVD rentals
in October were up a whopping 83% compared with the same month a year
ago, suggesting the real culprit is VHS, the part of the rental market
still dominated by Blockbuster. Overall, Netflix predicted its revenues
for the quarter will come in between $80 million and $82 million, up
from earlier predictions of $77 million-$81 million. Excluding
stock-based compensation, Netflix predicts a profit of $4.5 million-$6.5
million, compared to $3 million-$6 million. Netflix customers pay $19.95
per month for access to some 15,000 film titles, which they can keep as
long as they like with a maximum of three moves out at any time. No late
fees or shipping fees for returned discs are required. Netflix claims it
can serve more than 80% of its subscribers with next-day delivery.

Boosted by DVD boom

Despite new competition from larger retailers like Blockbuster and
Wal-Mart, pioneer Netflix seems to be holding its ground. According to
Thomas Weisel Partners, Netflix is a major beneficiary of the continued
boom in DVD players, spurred in part by low-cost units this holiday
season. Netflix' addressable audience of U.S. television households
could exceed 55% by year's end, noted Thomas Weisel analyst Gordon
Hodge. He added that traffic to Netflix's site increased 71% in October
to 5.3 million unique users. New rival services from Wal-Mart and
Blockbuster "don't appear to be increasing their commitment to online
marketing, according to our keyword-search analysis," Hodge said. He
forecasts DVD penetration will hit 90% of U.S. TV households in 2005 and
expects Netflix to continue to outpace the installed base growth.

Credit: http://www.variety.com/article/VR111...goryid=20&cs=1
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