Netflix Milks Churn News for a Rally

Like an unknown talent generating pre-Oscar buzz, Netflix's (NFLX Quote - Cramer on NFLX - Stock Picks) star continues to rise. But although the advance word is promising for the online video rental store, the crucial numbers are the ones yet to be tallied.

Netflix, which raised guidance for certain closely followed operational statistics early last month, said Thursday morning it would beat one of the revised figures for the fourth quarter ended Dec. 31.

That news elevated Netflix's shares as much as 14% at Thursday's open. Later in the morning, shares were trading at $11.65, up 64 cents, or 6%. Shares in other movie-rental chains rose about the same amount during a broad New Year's rally on Wall Street.

Netflix's announcement aligns with investors' ongoing suspicions that the video retail business is undergoing some sort of upheaval, though the exact nature of the change and the extent of its impact are hard to gauge. While Netflix is enjoying tremendous growth in mail order DVD rental via its Web site, traditional storefront video stores, most notably Blockbuster (BBI Quote - Cramer on BBI - Stock Picks), were hit by significant post-Thanksgiving rental slowdowns of still-uncertain origins.

Blockbuster's disclosure two weeks ago that it would fall well short of revenue and earnings estimates for the fourth quarter walloped shares in the Viacom (VIAB Quote - Cramer on VIAB - Stock Picks) offspring and caused collateral damage to smaller retail chains Movie Gallery (MOVI Quote - Cramer on MOVI - Stock Picks) and Hollywood Entertainment (HLYW Quote - Cramer on HLYW - Stock Picks).

Meanwhile, Netflix said Thursday that its average monthly churn -- that is, the percentage of subscribers who drop its service each month -- would come in below the range of 6.6% to 7% it forecast in December. That range, in turn, was more optimistic than the company's prior guidance of 7% to 7.4%. In addition, Netflix said it would end the year with 857,000 subscribers, just above the midpoint of the range of 840,000 to 870,000 it projected a month ago.