Netflix Earnings Reflect Strong Growth

| About: Netflix, Inc. (NFLX)
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The world's leading internet television network provider Netflix's (NASDAQ:NFLX) first-quarter earnings results for the year 2013 are finally out. They showed a tremendous performance in the first quarter of 2013. The company successfully added more than 3 million new subscribers in the first quarter, compared with the fourth quarter of 2012, and reached more than 36 million global subscribers who collectively enjoyed 4 billion hours of movies and television shows on NFLX.

Subscriber growth

Netflix generates most of its revenues from its domestic streaming service. First-quarter results showed a strong growth in its domestic streaming. NFLX managed to add more than 2 million domestic subscribers to the service, a 7 percent growth on a quarter-on-quarter basis, and a 25 percent growth on a year-on year basis. Despite the fact that NFLX has a strong domestic network, it magnificently attracts more than 1 million new subscribers internationally, bringing its total to 7.1 million, which showed a 17 percent growth from its previous quarter (4QY12). The company said that the success of its first original series "House of Cards," attracted many subscribers in the first quarter.

Attractive Streaming experience

The reason behind the increasing subscription base is that the company is aware of its customers' needs and that helps it to selectively acquire the content for its customers. Deals with Warner Bros. Television and Tuner Broadcasting are admirable examples. With the help of these deals, NFLX was able to bring complete series of some of the latest, hottest TV shows, including "Revolution" (NBC), "The Following" (Fox), "Longmire" (A&E), and "Political Animals" (USA) on its network. These deals also helped it to pick only those popular shows that are in demand or it believes will work for its customers. To continue its legacy, NFLX made arrangements with FOX Television to bring the third season for its customers' favorite "The Killing" to its network.

On April 19, 2013 NFLX launched all 13 episodes of TV series "Hemlock Grove," a horror thriller from Eli Roth. The company said that it received a very good response, mostly from international members in the first weekend, which was more than "House of Cards." It said that the new TV series has been a hit among young adults. The company also released that on May 26, 2013, all episodes of the long-awaited and most-anticipated fourth season of "Arrested Development" will be available on the network.

Earnings beats analyst expectations

NFLX reported that it earned 31 cents per share, excluding one-time debt-related charges, in the first quarter while analysts were expecting 19 cents per share. For the second quarter, the company is expecting to earn 23 cents to 48 cents. Analysts expect NFLX to earn 30 cents per share.

Global profitability

Net income for the first quarter was $3 million, or 5 cents per share, including a $16 million loss on extinguishment of debt, net taxes, related to the refinancing of its 8.5 percent bond in February 2013. Excluding this loss, its net income was $19 million, or 31 cents per share. Excluding the loss on extinguishment of debt, domestic streaming contribution profit increased by $18 million and international streaming losses decreased by $28 million, more than offsetting a $14 million decrease in DVD contribution profit and an increase in global operating costs.

Enhancing customers' experience

In order to increase and enhance the customer experience, NFLX is initiating a few steps. First, it is introducing a "profile" feature that will separate the activities of each individual on NFLX. This helps the company to get a better understanding of individual customer needs. This also enables it to offer more relevant and personalized recommendations for each individual. Second, it is using social media platforms for better content discovery by its customers. Third, it released a new player for Smart TVs and set-top boxes for faster playback.


NFLX is benefiting from increased penetration of sophisticated smartphones and tablets, globally. More and better devices and high-speed internet connections enhance its TV experience, domestically as well as globally. This is the reason that its global customer subscription base is increasing rapidly. Furthermore, the company is eager to enhance its customer experience by introducing popular TV shows according to customers' needs. I strongly recommend investors buy this stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.