Wednesday, July 21, 2010

Netflix Profits Up, Revenues Down in Q3

Netflix is growing subscribers, Earnings per share is rising, but the rise of internet streaming has caused subs to downgrade their service. As a result, Netflix revenues are down in the third quarter. And here is the rub, because customers are streaming more and taking less DVDs, their plans cost less but the margins go up as mailing costs go down.

"Netflix said 61% of its subscribers are now streaming more than 15 minutes over the Internet, up from 55% in Q1 and 37% in the year-ago quarter. This trend will obviously continue as more Netflix subscribers stream more movies over the Internet. This could potentially force Netflix to raise their fees, or just to deal with lower revenue per subscriber." And with Redbox entering the internet streaming business, it will be hard for Netflix to raise fees to compete. Better margins, higher profits, lower revenue. And competition to boot, which could eat into profits. It is easy to see why the stock market lost favor in Netflix.

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