Netflix's big report may boost stocks

The video streaming company added 3 million new subscribers, sending shares soaring late Monday. Apple reports after the close.

By Charley Blaine Apr 23, 2013 7:54AM
Caption: The exterior of Netflix headquarters is seen in Los Gatos, Calif. Credit: © Paul Sakuma/AP
Netflix (NFLX) won a lot of respect late Monday when it reported much-better-than expected earnings and raised its guidance for the second quarter.

The report sent shares soaring nearly 25% after hours to $217.40 after rising 6.7% in regular trading, and set the shares up for a strong open on Tuesday.

The report may give U.S. stocks some overall support as well on Tuesday. A worry: Reports suggested manufacturing in China is expanding at a slower-than-expected pace. That raises concerns that China's economy is faltering.

The Netflix report also offset some of the gloom generated by Caterpillar's (CAT) weak first-quarter results. The only good news from the Caterpillar report was that it was no worse than feared.

Netflix was up 88.3% for the year before the earnings report came out. It's the second-best performer this year among stocks in the Standard & Poor's 500 Index ($INX), after Best Buy (BBY).

The company added 2 million U.S. subscribers to its video streaming service and an additional 1 million international subscribers. Netflix now has about 36 million users of its streaming service, which now accounts for more than 76% of revenue.
The company earned 31 cents a share after one-time charges, up from a loss of 8 cents a share a year ago. Revenue rose 17.7% to $1.02 billion. Revenue from its legacy DVD business was down nearly 24% to $243.3 million.

Netflix has started to produce original content in its streaming service, such as "House of Cards." This past weekend, it launched "Hemlock Grove," a horror series from Eli Roth, which it said attracted more viewers in its first weekend than "House of Cards."

Still, the DVD business commands a profit margin of nearly 47% after marketing and other costs. That's much better than the streaming business.

But Netflix is a volatile stock, infamous for the 82% decline between the summer of 2011 into August 2011 after customers objected to the company's proposal to split its DVD and streaming businesses and charge separately for each service.

Tuesday's U.S. market will be dominated by talk about -- and then the actual earnings from -- Apple (AAPL) after the close. Apple is expected to report an 18% decline in earnings per share to $10.07 for its second-fiscal quarter, while revenue is seen rising 8.7% to $42.6 billion.

That would be the first year-over-year earnings decline since 2003. IPhone sales are expected to be down slightly compared with a year ago, when Apple sold 35.1 million units (generating $22.7 billion in revenue in the process). IPad sales may hit a new high, expected at 18 million to 19 million units.
 
But there's a concern that Macintosh computer sales may fall, unable to withstand the decline in personal computer sales generally as users substitute smartphones and tablets for laptops and desktops.

One bit of evidence on how strong that trend is came early Tuesday from ARM Holdings (ARMH), the British designer of low-power chips used in smartphones and tablets. Chips built on ARM designs dominate its market.

ARM reported a 58% increase in earnings as revenue rose 26% to 263.9 million pounds. Shares were up 59.5 pence to 928.50 pence in London trading. It was the top performer among stocks in the FTSE-100 Index ($GB:UKX).

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