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Netflix Quarter a Big Hit

Shares surge after earnings top estimates and the online DVD renter raises guidance.
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Updated from Oct. 23

Shares of

Netflix

(NFLX) - Get Netflix, Inc. (NFLX) Report

soared Tuesday after the company reported blockbuster third-quarter results and boosted its profit outlook for the year.

The stock recently was trading at $27.20, up $4.12, or 18%.

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The online DVD-rental service said after the bell Monday that it earned $12.8 million, or 18 cents a share, for the third quarter, up from $6.9 million, 11 cents a share, a year earlier. Excluding stock-based compensation expense, the company said it earned $14.6 million, or 21 cents a share, up from last year's $10.2 million, or 16 cents a share.

Analysts, on average, had expected Netflix to report earnings of 12 cents a share, according to Thomson First Call. The First Call estimates include stock option costs.

On its top line, Netflix reported a 48% jump in revenue to $256 million for the quarter. That also beat analysts' expectations for revenue of $251 million.

On the basis of its performance, the company said it now expects fourth-quarter earnings of $7.5 million to $13.5 million, up from its previous guidance of $3.8 million to $8.8 million. It also boosted its sales target for the quarter to $273 million to $278 million, up from its previous range of $267 million to $272 million.

Netflix ended the third quarter with about 5.7 million subscribers, up 58% from a year ago and 10% from the end of its second quarter. Its gross margin rose to 38%, compared with 33.1% in last year's third quarter and the 37.1% it recorded in the second quarter of 2006.

For the year, the company expects ending subscribers of at least 6.3 million.

"We combine a great customer experience with low operating costs. That's a powerful formula for success," said Netflix in its press release.