Poor Netflix (NYSE: NFLX). It's waging a constant and ferocious battle for customers with Blockbuster (NYSE: BBI), and its earnings report has to compete with the biggest company out there right now. But its service has always been nothing short of outstanding for me, so I thought I'd throw the online DVD-rental giant a little love. After the close, NFLX said its third-quarter profit jumped 23% from year-ago levels, hitting $15.7 million, or 23 cents per share. Revenue was also on the move, rising 15% to $294 million. These headline figures were above analysts' estimates for per-share results of 15 cents on revenue of $286.5 million. The numbers also topped Netflix's own predictions for earnings of 11 to 19 cents on $284 million in sales. The total number of subscribers to Netflix services moved up 24% during the reporting period to nearly 7 million, from 5.7 million last year. Adjust your Netflix-friend lists accordingly.
Thanks to the positive surprise, Netflix has lifted its outlook for the fourth quarter. The company now expects per-share results between 9 and 16 cents per share, above prior targets ranging from a loss of a penny to a profit of 6 cents per share. Revenue estimates are now $297 million to $302 million, up from a previous target of $277 million to $287 million. Analysts are expecting earnings of 4 cents on $284.5 million in revenue for the fourth quarter.
In after-hours trading, Netflix has zoomed up nearly 12% after closing the regular session with a 1% loss. The stock has been in recovery mode for the past several weeks; a large rally in tomorrow's trading could solidify a new uptrend in the shares, as they overtake technical resistance at their 20-month moving average. A rally of this magnitude could result in some short-covering activity as well as the bears storm the exits. Currently, almost 30% of the stock's float has been sold short, for a short-interest ratio of 18.4. A short squeeze is a self-perpetuating thing, so if and when it begins, there could be plenty of buying fuel in the tank to further the equity's rally.
Beth Gaston Moon is an analyst at Schaeffer's Investment Research.
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