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Netflix shares jump on higher profit

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Copyright 2006 MarketWatch, Inc.

Netflix shares jump on higher profit
By David B. Wilkerson & Carla Mozee

CHICAGO (MarketWatch) -- Shares of online DVD-rental firm Netflix Inc.
surged more than 15% in Wednesday afternoon trading after posting a
fourth-quarter profit was more than six times greater than a year ago
on higher subscriber revenue.

After Tuesday's closing bell, the Los Gatos, Calif.-based company
said that net income rose to $38.1 million, or 57 cents a share, from
$5.6 million or 9 cents a share a year ago.

Excluding a benefit from realized deferred tax assets in the quarter,
pro forma net income was $11.3 million, or 17 cents a share. Revenue
rose 36% to $195 million from $144 million a year ago.

Subscriptions rose 60% from a year ago to 4.2 million. The tally
represents a 16% improvement from the third quarter.

The company has recently benefited from an August rental fee increase
at rival Blockbuster Inc.

Churn, or the rate of subscriber cancellations, dropped to 4% from
4.4% a year earlier, and from 4.3% in the third quarter of 2005.

Subscriber-acquisition cost was $40.65 per gross subscriber addition,
compared with $34.64 a year ago and $35.69 in the third quarter.

Gross margin for the quarter was 47.1% compared with 45.5% in the
year-ago period.

The company said its gross margin over the last four quarters has
risen because of lower content costs and popularity of its
lower-priced rental plans among its customers.

But it foresees a reverse in that gross-margin trend in the first
quarter because of the effects of the recent postage rate hike.

Netflix forecast first-quarter revenue of $219 million to $224 million
and a subscriber tally of 4.6 million to 4.85 million. It expects
first-quarter results between a loss of $1.5 million and a profit of
$2.5 million.

Analysts surveyed by Thomson First Call expect Netflix to post
first-quarter revenue of $216 million and a per-share profit of 9

For the full-year 2006, the company forecast revenue of at least $960
million and net income of $29.5 million to $35.4 million. Wall Street
expects the same amount of revenue, along with a profit of 80 cents a

Netflix expects to end the year with at least 5.9 million subscribers.

In a conference call late Tuesday, executives said that its subscriber
base should grow this year as more local video stores close down
because of pressure from larger chains and growth in the online
DVD-rental market.

Netflix also said it plans to invest $5 million to $10 million in 2006
to continue developing technology to offer downloadable movies when
that option becomes available.


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