Netflix 4Q Profit Up 45 pct, Helped By Recession

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SAN FRANCISCO - Netflix Inc.'s fourth-quarter profit climbed 45 percent to surpass analysts' estimates Monday, propelled by the widening appeal of its relatively inexpensive DVD rental service during a budget-crimping recession.

The results, along with an optimistic forecast for the current quarter, drove Netflix shares up by more than 6 percent in extended trading.

The Los Gatos, Calif.-based company added 718,000 customers in the final three months of 2008, more than doubling the growth envisioned by management. The surge left Netflix with just under 9.4 million customers through December, a 26 percent gain from 2007.

What's more, new customers flocked to Netflix even as the company spent substantially less to lure them. Netflix's cost per new subscriber averaged $26.67 in the quarter, a 23 percent drop from the same juncture in 2007.

The ability to entice more subscribers at a lower cost helped Netflix earn $22.7 million, or 34 cents per share, in the fourth quarter. That compared with net income of $15.7 million, or 23 cents per share, at the same time in 2007.

Analysts, on average, had projected earnings of 34 cents per share, according to Thomson Reuters.

Revenue in the period climbed 19 percent to $360 million, about $6 million above analyst estimates.

Netflix believes the weakening economy is still working in its favor. Management predicted it will attract 700,000 to 900,000 more subscribers during the current quarter, yielding earnings ranging from 25 cents to 33 cents per share on revenue of $387 million to $393 million.

The average analyst estimate for the first quarter had stood at 30 cents per share on revenue of $371.5 million.

Netflix shares surged $2.05, or 6.8 percent, in extended trading after finishing Monday's regular session at $30.15, down 29 cents.

By the end of 2008, Netflix expects to have anywhere from 10.6 million to 11.3 million customers, most of whom pay $14 to $17 per month to rent DVDs that are delivered through the U.S. Postal Service.

In addition to the 100,000 titles available that way, Netflix also offers about 12,000 selections that can be instantly streamed through high-speed Internet connections at no additional charge — an alternative that appears to be gaining traction with more consumers.

For all of 2008, Netflix earned $83 million, or $1.32 per share, on revenue of $1.36 billion. That compared with a 2007 profit of $66.6 million, or 97 cents per share, on revenue of $1.21 billion.