Netflix Stocks Soar, Earnings Surge 26%

Subscription rental company adds nearly 2 million customers during its third quarter

 With its latest earnings report, Netflix gave further proof that in the new movie rental landscape, it wears the crown.

Shares surged as the subscription movie rental company added nearly 2 million subscribers to its rolls and earnings jumped 26 percent during its third quarter.

The company handily beat Wall Street’s expectations, as Netflix logged revenues of $553 million and earnings of 70 cents for the period ending September 30. Analysts had been predicting revenues of $551 million and 71 cents.

Netflix said it had logged net income of $38 million. The stock rose 6.6 percent to $163.25 in extended trading on the bullish earnings report.

It represents a return to the Street’s good graces for the company. Its second quarter earnings had been softer than anticipated, and the 1.93 million new customers it added over the past three months were nearly double the 1 million subscribers it had attracted over the previous period.

Just don't it them a DVD-by-mail business. CEO Reed Hastings said the company's DNA has changed dramatically.

"This growth is clearly driven by the strength of our streaming offering. In fact, by every measure, we are now primarily a streaming company that also offers DVD-by-mail," said Hastings in a statement.

To that end, Netflix said that two-thirds of its subscribers stream content; up from 41 percent last year and 61 percent in the second quarter.

That percentage will grow, as the company is testing a streaming-only service in the United State. Netflix began offering a $7.99 a month streaming service in Canada last month. Depending on how the tests go domestically, streaming only may become an option here as well.

Beyond a pure numbers perspective the past few months have been good to Netflix. The company announced a new partnership with cable channel Epix that substantially enhances its streaming service. Not to mention saw one of its chief competitors, Blockbuster, finally succumb to its financial problems and shuffle into Chapter 11.

Netflix, which now has 16.9 million subscribers, revised its projections for the year. It now expects to have 19.7 million subscribers at the end of the year, up from earlier projections of 17.7 million to 18.5 million.

Also positive — Netflix’s subscriber acquisition costs dipped substantially from both the second quarter of 2010 and the same period a year ago. For the third quarter acquisition costs were $19.81 per gross subscriber addition compared to $26.86 for the same period of 2009 and $24.37 for the second quarter of 2010.

There were also some positive developments on the churn front. The number of customers who opted not to renew their subscriptions stood at 3.8 percent compared to 4 percent for the second quarter.