NetFlix: The Tide Has Turned

Online DVD rental firm NetFlix is forecasting substantial profit increases over the next several years as the company adds subscribers and video rental stores shut down.

Is it any surprise people prefer to have DVD rentals painlessly delivered to their doorstep rather than shovelling through the racks at Blockbuster? At a meeting with industry analysts yesterday, Netflix CEO Reed Hastings said the company expects its annual revenue to increase dramatically and that the DVD rental firm may reach 20 million subscribers by 2010 to 2012. Going further, Chief Marketing Officer Leslie Kilgore estimated the DVD rental firm’s market penetration might grow as large as 30 percent of U.S. homes with Internet connections and DVD players.

Hastings reaffirmed guidance for revenue between $172 and $176 million for its third and fourth quarters of 2005 with net income of $4.5 to $8 million for its third quarter. However, Hastings said the company expects to clear $50 million in profit in its 2006 fiscal year, and confidently projected earnings-per-share to grow at 50 percent annually for years to come.

The company’s current goals are to reach 4 million subscribers by the end of 2005 and 5 million by the end of 2006, subscriber numbers substantially ahead of the company’s previous forecasts. To date, NetFlix has been battling Blockbuster for share of the DVD rental market, estimated to account for over $9 billion annually. But Blockbuster is now confessing revenue weakness and shuttering stores while NetFlix subscribers are increasing steadily