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5 Things You Need to Know About Netflix Right Now

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NetFlixNetflix (NFLX) impressed skeptical investors with better-than-expected results on Wednesday night.

If you want to know why the stock rallied on the news but you don't want to get your hands dirty by scouring the report, let's cover five important takeaways from Netflix's fourth-quarter financials.

1. Netflix held up better than worrywarts were projecting.

Growth isn't dead at Netflix -- as long as you're willing to limit yourself to a top-line inspection. The video-rental and streaming giant generated $875.6 million in revenue during the final quarter of 2011 -- a healthy 47% improvement over where it was a year earlier.

With the turnstiles going batty earlier in the quarter after Netflix's poorly received price hike, the high costs of breaking into new international markets, and the migration of customers from high-margin DVD rentals to lower-margin -- for now -- streaming plans, a drop in profitability wasn't a surprise. Earnings declined 16% to $0.73 a share for the period.

The good news on both fronts is that analysts were expecting a profit of $0.55 a share on only $857.9 million in revenue.

2. There are a record 26.2 million unique Netflix subscribers worldwide.

After watching more subscribers bolt in anger during the third quarter than those nervously tiptoeing in, Netflix has returned to growing its base of unique subscribers.

The initial math may not make it seem that way. There were 600,000 net subscriber additions on the streaming end (220,000 domestic and 380,000 international). However, there were 2.76 million net cancellations from folks on the DVD plans.

Ouch!

However, most of the folks kissing the red optical-disc mailers goodbye are those who found themselves suddenly paying for both DVD and streaming plans after the summertime pricing change. The majority of those "cancellations" are actually people who have chosen to stick with just the streaming service to save money. The result is that the number of total unique domestic subscribers has grown from 23.79 million to 24.4 million over the past three months. Tack on the 1.86 million international streaming customers and you arrive at a record 26.2 million unique Netflix accounts.

3. If you want to stream Toy Story 3, Tron, or Tangled, do it soon.

Liberty Media's (LMCA) Starz has been the source of many of the popular new movies available through Netflix, but that deal is going away toward the end of next month.

One of the bigger voids will arise from Starz' rights for Disney's (DIS) new releases. In other words, Toy Story 3, Tangled, and other recent Disney releases will go back to being available through Netflix only on optical disc. A deal with DreamWorks Animation (DWA) won't kick in until next year.

So if your kids, grandchildren, or nieces have been enjoying a steady diet of Disney streams, it's time to let them down softly.

4. Latin America isn't growing as quickly as Canada.

When Netflix announced its plan to roll out in 43 countries through Latin America and the Caribbean, the excitement was easy to understand. There are four times as many broadband consumers through Latin America as there are in Canada.
However, Netflix's earnings letter reveals that Latin America has roughly as many subscribers as Canada did at this point in its launch. During last night's conference call, the company conceded that Latin America's streaming service is actually growing slower than Canada's.

The likely explanation is that Canada's proximity to the United States made Netflix well known in the country. It's more of an uphill battle to establish brand awareness in Latin America.

5. Video game rentals aren't coming.

Video game rentals were promised in September as an olive branch for putting subscribers through the Qwikster transition. However, the plans to separate the company's service into two distinct offerings and websites were nixed under a sea of subscriber unrest just three weeks later.

Adding video games to its offerings was really the only good idea to have come out of the Qwikster fiasco. Redbox and Blockbuster already offer video game rentals on disc, and surely offering games by mail would help broaden Netflix's reach and popularity.

But the company conceded during last night's conference call that video game rentals are no longer in the company's plans.

Then again, that doesn't mean that the company itself won't be playing games. We've seen plenty of that in recent months, and thankfully for investors they've been winning games in recent weeks.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, except for Netflix, Disney, and Liberty Media. Motley Fool newsletter services have recommended buying shares of DreamWorks Animation SKG, Netflix, and Disney.



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I wondered why I almost never see any wait notifications on my DVD queue anymore. I guess all those people opting for sub-standard streaming, much fewer titles, and no access to extras freed up all those DVDs for those of us who prefer a quality experience. Oh well, more for us!

January 26 2012 at 11:43 PM Report abuse +1 rate up rate down Reply