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Earnings: Blockbuster Slims Loss, Revs Slip 2.7 Percent
In contrast to its main movie-rental rival, Netflix (NSDQ: NFLX), which posted double digit Q3 profit and revenue gains last month, Blockbuster (NYSE: BBI) said its Q3 revenues fell 2.7 percent, or $33.6 million, to $1.20 billion. The company narrowed its net loss by 48.3 percent to $17.8 million ($0.11 per share), compared the $34.4 million ($0.20 per share) loss in Q307. Analyst estimates projected net loss of $0.16 cents per share on revenue of $1.27 billion, AP reported ahead of the earnings release. Revenues suffered from lower subscription rentals and a fall-off in the brick-and-mortar retail business globally. Games were a bright spot, with related merchandise revenues rising 35.1 percent, helping same store U.S. sales rise 5.1 percent. No details about online activity.
-- Gross profit during the quarter dropped $26.9 million from Q307 to $643.3 million. Gross margin declined 70 basis points to 53.4 percent.
-- Costs tied to ad spending increased, totaling $32.4 million from last year's $27.5 million.
Release | Webcast
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Earnings Call: Netflix CEO Hastings: 'We're Not (Totally) Immune To The Recession After All'
Looking at how the recession will impact Netflix (NSDQ: NFLX) Reed Hastings, Netflix's chairman and CEO, opened the companies earnings call by ticking off all the various deals that it hopes will insulate the company from a drastic slide in growth. He touched on the $99 Roku movie player to content deals with cable nets like Starz and Disney (NYSE: DIS) Channel, as well as distribution arrangements with Microsoft (NSDQ: MSFT), via Xbox. The company also plans to increase investment in streaming video rentals. In particular, Netflix is prepping an update of the "laptop-oriented viewing service" for Windows and Intel-based macs later this year. But given the pullback in consumer confidence, Hastings said that his July stance that the company would be immune to an economic downturn has been reversed, but his view is not completely dark. Hastings: "The recession means continued subscriber growth, but at a much slower rate. Q4 will be between 60 percent below what it was a year ago, to 6 percent above on the high end. The company also expects a small boost to revenues from subscribers who elect to choose Blu-Ray discs that adds a $1 surcharge to their membership.
Release (PDF) | Webcast (5:00 pm EDT) | Transcript (via Seeking Alpha)
-- On Display and subscriber growth: Hastings: No softening of display ad rates yet. But hoping that lower prices will ease the company's financial burdens. Another analyst, pointing to retailers like eBay seeing a drop-off in business, Hastings said the company's growth is trending 30 percent below, a significant slowdown.
-- Online vs. DVD: Growing adoption of Watch Instantly online feature. There is no easy way tell whether people watching online is leading those customers to reduce their DVD rentals. "The kind of person who is more likely to watch online is a different kind of person from those who prefer physical rentals. But it's hard to tell."
-- Stop the panic: Later on, Hastings asked investors "not to push to the panic button yet" and insisted that the business overall was still healthy. As for whether consumers will be willing to pay more for Blu-Ray and streaming—there's no surcharge on the latter yet, as Netflix wants to wait until that business can attract more users—Hastings said that the platform expansion and the content expansion will ultimately make the difference.
-- Olympics impact: Looking back at what else, besides the general economic pressures, affected Netflix, Hastings noted that the Olympics broadcast tended to depress the amount of product coming from the studios. The Olympics also resulted in less rentals, as viewers were glued to coverage on NBC and its dedicated site, NBCOlympics.com.
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Earnings: Netflix Q3 Revs Rise 16 Percent; Net Income Gains 30 Percent
Netflix (NSDQ: NFLX) Q3 revenues came in at $341 million, up 16 percent year-over-year from Q307's $294 million. Meanwhile, GAAP net income for the same period was $20.4 million ($0.33 per diluted share), compared to $15.6 million ($0.23 per diluted share) the year before—a 30 percent gain. Gross profit also grew, rising 8.4 percent to $116 million from Q307's $107 million. The movie rental company also beat analysts' estimates, Reuters reported. As a result, Netflix shares gained roughly 3 percent to end $24.53 a share in after-hours trading on Monday after closing at $23.80 a share. Other highlights from Netflix's Q3 included:
-- Subscriber acquisition cost was $32.21 per gross subscriber addition, compared to $37.89 for the same period of 2007 and $28.89 for the second quarter of 2008.
-- Churn was 4.2 percent, the same as it was last year and Q208.
-- Free cash flow was $26.2 million, compared to $36.2 million the previous year.
-- Outlook: Netflix expects to end Q4 with 8.85 million to 9.15 million subs, down from the previously anticipated 8.95 million to 9.25 million. Next quarter's revenue is expected to range from $351 million to $357 million, down slightly from $353 million to $359 million, with GAAP net income between $18 million to $23 million, unchanged from prior guidance.
Release (PDF) | Webcast (5:00 pm EDT) | Transcript (via Seeking Alpha)
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Depressing Movies: Netflix Cuts Q4 Outlook; Shares Down
So maybe people aren't watching that many movies during these depressing times, or at least not joining a new service in droves: Netflix (NSDQ: NFLX) has cut its Q4 subscriber outlook, and also said that Q3 ended with fewer subscribers than it anticipated. CFO Barry McCarthy said that net subscriber growth in July was "in line with expectations but August was unusually weak...In September, the business regained momentum with results slightly below original expectations, likely due to the economic climate."
Netflix ended Q3 with about 8.672 million subscribers, just below the low end of its previous guidance of 8.675 million to 8.875 million subscribers. Subscribers grew 23 percent year-over-year and 3 percent sequentially. For Q408, it expects subscribers between 8.95 million to 9.25 million, down from 9.1 million to 9.7 million. Revenues are expected between $353 million and $359 million for the quarter, down from its earlier projection of $357 million to $367 million.
Its shares fell more than 12 percent this morning after the outlook forecast. (It recovered slightly. closing 8.5 percent down.) More details in release.
Netflix Call: CEO Hastings: No Plans For PPV Or Ad-Supported Service
Kicking off the call, Netflix (NSDQ: NFLX) CEO Reed Hastings predicted that the DVD-by-mail segment would continue expanding for another 5-10 years, despite the deteriorating economics of the DVD business and the emergence of digital distribution. He immeditely got into the company's digital strategy, saying: "We don't plan to enter the pay-per-view segment (Apple (NSDQ: AAPL), Amazon (NSDQ: AMZN), et. al) or the ad-supported space (Hulu)". The plan is to focus on subscriptions.
-- Roku: "It's been a huge hit, with strong reviews, strong sales and great subscriber satisfaction… in the future, Roku boxes will support other internet content (not just Netflix)."
-- XBox: Normally the plan is to pursue ubiquity, but in this case it was worthwhile to do an exclusive deal: "Its impact for this year is unclear… we and Microsoft (NSDQ: MSFT) have yet to understand how much will drive Live Gold subscriptions, console sales or Netflix subscriptions." Also, there's still one more hardware partner coming.
-- Kiosks: Will cause more pain to traditional stores than it does DVD-by-mail.
-- Gross margins: Gross margins expected to grow in Q3 and Q4 despite investments into digital content (This is key, as it's been a major concern for investors).
Q&A: Interesting note: The company is doing all Q&A via email. Last quarter the company was forced to do this via technical problems, but they got a lot of good feedback, so now they're trying it again as a test. Wonder if this will start a trend.
-- Competition with Amazon for CE partners?: We're in different areas. They're in PPV, and we're in subscriptions. Both are necessary.
-- Digital usage: "We haven't given any color on the specific trends… it's just too early to tell. We don't have a control group that doesn't get instant watching. There's really not an easy way for us to say anything conclusively. We're very encouraged… but at this point we don't have any specifics."
-- Economy: We appear to be unaffected by this negative climate.
-- Blu-ray: "Blu-ray usage continues to be very low… low single digits." It could help if device prices decrease this Christmas.
-- End of Red Envelope: No meaningful cost savings.
-- Roku sales figures: No comment on recent report of 100k Roku boxes sold. Also, it's too early to talk about consumption patterns of Roku buyers, since at this point, Roku buyers are all early adopters, and not necessarily typical.
-- Revived MovieLink: "MovieLink is a pay-per-view model that will compete with Apple and Amazon in that segment. ... We're in a different segment." (They've been making this point several times, that they don't compete with ad-supported or PPV models, but you have to wonder how legitimate that is: can't consumers switch from one consumption model to another?)
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Earnings: Netflix Q2 Revs Up 11 Percent; Beats On EPS; Ups FY Guidance; Stock Jumps
Netflix (NSDQ: NFLX) reported Q2 revenue of $337.6 million, an 11 percent increase from $303.7 million a year ago. Net income was up just 3 percent to $26.6 million. A significant reduction in shares outstanding, however, meant that EPS rose 13.5 percent to $.42 per share from $.37 per share. That surpassed analyst estimates of $.40 per share, and the company raised its full year outlook slightly. Total subscribers now stand at 8.4 million, a 25 percent year-over-year gain. Net subscriber adds for the quarter were 168,000, compared to a decline of 55,000 a year ago.
Subscriber acquisition costs were way down in the quarter from last year: $28.95 vs. $44.02. The company says it's the lowest in its history, and it continues a trend seen last quarter, as competition with Blockbuster (NYSE: BBI) abates. Churn was also down year-over-year, to 4.2 percent from 4.6 percent.
There's no data on the company's various initiatives to stream video online, but that's to be expected. Perhaps on the call we'll get some more info on the extent to which these initiatives are catching with consumers, and how much money they plan on spending to support them.
Update: The market seems to like it. The stock is up about 6 percent on the open. Not only was the report strong, but the company was upbeat on the call, assuring investors that there would be no big surprises about the cost of digital investments.
Read our conference call coverage.
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Earnings: Blockbuster Swings To Profit In Q1 As Revenues Drop 5.4 Percent
While movie renter Blockbuster (NYSE: BBI) saw Q1 profits of $45.4 million ($0.20 per diluted share) compared to last year's $49 million net loss, the closing of over 400 retail locations depressed revenues, which were down 5.4 percent to $1.39 billion from Q107's $1.47 billion - a decrease of nearly $80 million. At the same time, same-store revenues in the U.S. grew 2.9 percent year-over-year. As has become its custom, Blockbuster didn't break out the performance of its by-mail business, which is dominated by its main rival Netflix (NSDQ: NFLX). The shuttering of 412 brick and mortar stores included Blockbuster's divestiture of Gamestation chain of 217 locations in the UK.
Release | Webcast (9:00 AM EDT) | Transcript (via Seeking Alpha)
-- A Blockbuster iPod?: According the conference call transcript, James Keyes, Blockbusters' chairman and CEO, said the development of a digital platform is the third part of its "strategic initiative." The first part involves "restoring" its DVD rental business, the second is being identified as a "convenience retailer for media entertainment" through the sale of DVDs, video games, Sony (NYSE: SNE) PS3 players, Blu-Ray players, videogame consoles, etc… The digital strategy will continue to rely on online movie service Movielink, which Blockbuster acquired last August. Next month, Blockbuster will start testing a "digital download kiosk," which is powered by NCR Corp. Blockbuster is currently in talks with hardware makers to try to develop a portable device—a Blockbuster iPod?—to support the new download service. More after the jump.
-- Missing digital link: The remaining missing pieces of our digital offering are relating to subscription content, Keyes told analysts during the call. In addition to the download kiosk and the development of a portable player, Blockbuster is trying to acquire content and to find distribution partners. Keyes: "These are just a few of the many examples of work underway in the digital space. I can assure you that Blockbuster has not at all backed away from an online strategy. We called a time-out from our by-mail initiatives, both to make that business profitable and to develop a plan for true digital delivery."
Earnings: Netflix Q1 Revs Up 7 Percent; Income Up 32 Percent; 3 More Partners For the Box
Netflix (NSDQ: NFLX) has announced Q1 revenue of $326.2 million, a 7 percent increase from $305.3 million in the year-ago period. Net income rose 32 percent to $13.4 million ($.23 per share) from $9.9 million ($.14 per share). The company says it ended the year with 8.2 million total subscribers, an increase of 21 percent from the year-ago period, and 10 percent more than where it ended in 2007. Other metrics that improved, perhaps because of diminished head-on competition from Blockbuster: subscriber acquisitions costs ($29.50, down from $45.60) and churn (3.9 percent, down from 4.4 percent). The company modestly raised its outlook for the year, forecasting revenue of $1.35-$1.39 billion, from $1.345-$1.385 billion. On the outlook, Netflix shares are getting whacked after hours, falling over 13 percent.
Release | Webcast (5:00 PM ET)
Conference call: Temporarily, Netflix is in a sweet spot. Its primary competitor (Blockbuster) has pulled back from the market, and at at least so far, online distribution hasn't proved particularly disruptive to its business. But the company and investors know that this state won't last forever. Throughout this evening's conference call, chairman and CEO Reed Hasting talked about how much it would be spending on digital content to support its instant-viewing online option. This is a key reason, the company claims, its earnings growth won't be lights out through the rest of the year. Some highlights from the call:
-- Blockbuster: It's "too early" to start figuring the impact of a Blockbuster-Circuit City tie-up, so that guessing game can be left up to the analysts. Meanwhile, if Blockbuster (NYSE: BBI) were to decide to exist online distribution entirely, a la Wal-Mart (NYSE: WMT), Hasting suggested the company could conceivably buy those users; "If blockbuster made such a decision, we could probably work something out." Though he added, noting how much Blockbuster has invested in this business: "I anticipate that they'll stay in the business for the foreseeable future."
-- Consumer electronics: The company stressed that partnering with consumer electronics makers is a key step in bridging the gap, so that customers really feel comfortable watching video over the internet. Its partnership with LG is moving along, and it has others in the queue: "I can tell you, we have LG (SEO: 066570), plus three additional partners actively working on a integrating our service into their products." We'll find out over the coming quarters who they are. Beyond that, the company knows, it'll be a long time before any of these deals meaningfully contribute to the bottom line.
-- Instant viewing: Right now, subscribers to the DVD rental service have a free lunch, as the digital service is free to them. That free lunch will end, though it's not clear when, or what kind of costs consumers can expect. But considering how much the company is spending on its digital service—so much that its impacting earnings this year—Netflix will get its payment.
-- Blu-ray: Starting soon, customers can expect to see a fee increase if they get Blu-ray discs. The amount is not known, but given that consumers are used to paying more for HD content (and Blu-ray discs are more expensive), this is another free lunch that will end.
Earnings: Netflix Q4 Revs Up 9 Percent And Income Up 6 Percent; 18 Percent Subscriber Growth
Netflix (NSDQ: NFLX) has reported Q4 revenue of $302.3, up 9 percent from $277.2 million in the year-ago period. Net income rose 6 percent, to $15.7 million from $14.8 million. The company said it ended the quarter with 7.47 million customers, representing 18 percent year-over-year growth and 6 percent sequential growth. Other highlights:
-- The net subscriber gain the quarter was 451,000, down 654,000 in the year-ago period.
-- Subscriber acquisition costs fell to $34.60 per gross add from $44.31.
-- Gross margins fell to 33.8 percent from 38.9 percent, although net margins stayed relatively stable at 5.2 percent, compared to 5.4 percent.
-- Looking ahead one quarter, the company is forecasting 7.85-8.05 million subscribers, revenue of $323-$328 million and net income of $9 million to $14 million.
Conference call: Rather than start with a laborious run-down of the earnings release, Netflix CEO Reed Hastings kicked things off with a direct discussion of the important issues: competition and digital delivery. He noted that in 2007, the company's subscriber numbers were hit by Blockbuster (NYSE: BBI), which competed aggressively on price (a point that's been made several times before). In 2008, Netflix is predicting more net adds than in 2007, as Blockbuster will not compete as aggressively. Growth will be mitigated somewhat as the company decreases marketing costs directly.
-- Competition: On Blockbuster: "While they appear to have shifted from valuing profit over growth, they can shift (back) at any time." Any future attack is likely to be less painful, however.. Redbox kiosk service: Kisoks hurt video stores more than Netflix, so they may prove to be a net benefit if it causes more video stores to go out of business. On Cable/Internet VOD: not a short-term threat. Cable and internet VOD have similar pricing and content availability. Prices are higher at this model and the availability of titles is still limited "DVD continues to have many advantages": Earlier window for releases, ubiquity of content, prices. "DVD is simple, cheap and ubiquitous." Since Blockbuster raised its prices, Netflix has seen a modest improvement in acquisition, however the company hasn't seen a change in the number of customers that say they are leaving for Blockbusters. So it would be too soon to say that Blockbuster Online is dead.
-- Internet delivery: "Positioning ourselves to fully capitalize on internet delivery...Over the last year, we've tripled the amount of content we stream." "Netflix now offers for one low price, unlimited DVD rentals and unlimited screening??? consumers love the unlimited subscription model." "We hope in 2008 to be able to support web-based viewing on the Macintosh??? the hold back has been the lack of a DRM solution on the Mac." Also in 2008: Netflix will expand its streaming to game players, internet-enabled set-top boxes, etc. Biggest advantage for Netflix over other companies doing digital delivery: ability to bundle with a DVD service and the community that's been built up at Netflix.com. CFO Barry McCarthy later added: Consumer demand for internet video will really begin to take off when it's easy to watch internet video on the TV set and there's a full slate of content available. In the meantime, the Netflix brand grows. Cannibalization? Without a control group, it's difficult to say whether the existing streaming solution is affecting DVD viewing. Unlimited streaming: increased benefit to the customer is greater than the increased costs.
-- Subscriber growth: Subscriber growth in the latest quarter was down in part because in the previous year's quarter, Blockbuster wasn't promoting its Total Access service. But in the coming quarter, the company will have an easier comparison.
-- HD-DVD: Blu-Ray appears to have advantage. Key thing to watch for: lower priced Blu-Ray prices and full studio commitment. When these milestones are hit, Netflix expects to benefit.
-- Beyond LG: The plan is to make the LG (SEO: 066570) partnership a success, which will encourage other CE manufacturers to want to partner up. Plan is to expand with more partners starting in 2010.
Earnings: Netflix Q4 Revs Up 9 Percent And Income Up 6 Percent; 18 Percent Subscriber Growth
Netflix (NSDQ: NFLX) has reported Q4 revenue of $302.3, up 9 percent from $277.2 million in the year-ago period. Net income rose 6 percent, to $15.7 million from $14.8 million. The company said it ended the quarter with 7.47 million customers, representing 18 percent year-over-year growth and 6 percent sequential growth. Other highlights:
-- The net subscriber gain the quarter was 451,000, down 654,000 in the year-ago period.
-- Subscriber acquisition costs fell to $34.60 per gross add from $44.31.
-- Gross margins fell to 33.8 percent from 38.9 percent, although net margins stayed relatively stable at 5.2 percent, compared to 5.4 percent.
-- Looking ahead one quarter, the company is forecasting 7.85-8.05 million subscribers, revenue of $323-$328 million and net income of $9 million to $14 million.
More to come
Earnings: Viacom Q3 Revenues Up 24 Percent; Net Income Up 80 Percent
A good performance from Viacom, with net income of $641.6 million in Q307, up 80 percent from $356.8 million. Revenues rose as well, up 24 percent to $3.27 billion, from $2.6 billion, aided by the performance of Transformers and Shrek The Third as well as stronger numbers from Media Networks.
-- Media Networks' revenue rose 9 percent, with adjusted operating income up 14 percent to $818 million, excluding one-time items like a $3 million charge for restructuring. Worldwide advertising revenues were up 7 percent, to $1.18 billion.
-- Filmed Entertainment revenue rose 57 percent, to $1.30 billion, from $829 million the previous year. It also showed operating income of $71.7 million compared with an operating loss last year of $7.8 million.
Earnings release | Webcast (8:30 a.m. eastern)
Earnings call: The call started with a lovefest between Chairman Sumner Redstone and CEO Phillipe Dauman, with Redstone talking about how smart he and the board were to bring in old friends Dauman and COO Tom Dooley and raving about their leadership, results, etc. If Sumner's happy, everybody's happy.
Digital: Dauman: "We are growing our audiences and doing a better job of monetizing… As we provide richer content, users are staying longer." They've added 185-p-lus new digital advertisers year to date. More to come.
Monetizing Flux: The translated short answer for an analyst who wants to know where the money is in Flux: increased traffic is good for advertising.
The Strike: The company says it's "well positioned" for a strike. In other words, it has stuff it's working on that doesn't require fresh material right away. As for things that will be affected, like the Daily Show, there will be reruns at first, and then they'll evaluate.
Earnings: Blockbuster Q3 Net Loss Widens 41.7 Percent; Revs Fall 5.7 Percent
Pinning its poor Q3 performance primarily on costs related to closure and sell off of over 500 retail stores, video rental service Blockbuster (NYSE: BBI) posted an expanded net loss of $35 million, a 41.7 percent increase from Q306's $24.7 million loss. Meanwhile, Q3 revenues fell 5.7 percent to $1.24 billion from $1.31 billion in the same period last year.
The net loss was partially offset by a $79.2 million year-over-year revenue gains from Blockbuster's online rental service, as subscribers totaled 3.1 million by the end of Q3. Blockbuster didn't offer any details regarding the impact of its August purchase of online rental service Movielink, which was estimated to have cost the company under $20 million it bought for $6.6 million. Other highlights from the quarter included:
-- The company's operating loss for Q3 totaled $5.6 million, versus operating income of $3.3 million for the same period last year.
-- Gross profit dropped $75.7 million, which Blockbuster attributed to the general decline in revenues and an approximately $29 million impact to rental gross profit related to Total Access, which was introduced to help it compete with rival Netflix, which has about 6.7 million subs. Total Access gives consumers free in-store rentals when they return DVDs they ordered online to a store, as opposed to dropping it in the mail. More to come. Earnings release | Webcast (10 a.m. EDT)
Total Money Invested By Studios In Movielink: $148 Million; Revenues Stagnant
Not that a lot of people are interested in Movielink's fate anymore, after it got sold to Blockbuster (NYSE: BBI) earlier this year, but if you are from one of the five studios--MGM, Paramount, Sony, Universal and WB--that invested a total of about $148 million in five years, then you probably are. In an 8-K filed with SEC earlier today, BB disclosed the online movie services' always precarious finances and revenues.
Its losses for the first half of this year were $10.18 million, compared to $11.62 million in the year-ago half. Revenues for this period this year were $1.98 million, compared to $1.91 million in H106. For full year 2006, revenues were $4 million, on total losses of about $22 million. Lots more minutiae here.
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Earnings: Blockbuster 1Q Net Losses Grow, Revenues Rise, Both Attributed To Its Total Access Program
Citing costs associated with its Total Access subscription rental program, Blockbuster (NYSE: BBI) experienced a growing 1Q net loss of $46.4 million as compared with the $1.9 million net loss for the prior year’s period. Nevertheless, that program also drove revenues 5.4 percent higher to $1.47 billion from $1.40 billion for same period the year before as the number of Total Access subs nearly doubled within the past five months to 3 million. In a pre-call statement, John Antioco, Blockbuster’s chairman and CEO, commented on the costs related with building its Total Access as it competes with rival DVD rental company Netflix, which said Blockbuster wouldn’t be able to sustain such hits during its earnings report last month: “While this aggressive growth requires investment this year, we believe it’s the right thing for the business and will contribute to our future profitability and to the long-term success of the company.” Some other highlights from its 1Q report:
-- Rental revenues for the period were essentially flat at $1.05 billion despite growth in revenues from Total Access, which added approximately 800,000 subscribers during the quarter, which offset what Blockbuster called a larger than expected decline in the in-store rental business.
-- Operating losses totaled $18.4 million, compared to operating income of $32.1 million for the same period last year. Gross profit decreased $27.7 million primarily as a result of the decrease in rental gross margin.
-- Total selling, general and administrative expenses increased $24.3 million from 1Q06 to a higher level of promotional activities, including an incremental $35 million mass-media advertising campaign aimed at growing the Total Access subscriber base. The higher advertising costs were partially offset by an approximately $13 million decrease in general and administrative expenses driven by a smaller company-operated store base.
-- Blockbuster sold its U.K.-based Gamestation chain to The Game Group for approximately $150 million, and plans to use most of the proceeds from the sale to pay down outstanding debt. More to come. Earnings release | Webcast
Update: According to the Seeking Alpha transcript, Antioco, who noted his departure by the end of the year, said that in a year-over-year comparison, Blockbuster’s online revenues increased 116 percent. Secondly, the company picked up 10 percentage points in market share, going from approximately 20 percent of the online market to 30 percent. As for Total Access the company plans to invest upwards of $170 million in the program this year and would add an online-only option for customers later this year. He and other Blockbuster execs decided to avoid mentioning competitor Netflix, which predicted during its call two weeks ago that Blockbuster’s aggressive pricing under Total Access could not be sustained and that Blockbuster would eventually have to pass on the cost to consumers.
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