BII Express: Key Takeaways From Netflix's Earnings Beat

Netflix Beats The Street

Netflix beat the Street on the top and bottom line yesterday with EPS $0.73 versus $0.55 expected and revenue of $876 million versus $857 million expected, SAI's Jay Yarow notes.

The two key takeaways were on subscribers and competition.

  • Streaming subscribers, first: US subscribers are growing again, with net additions of 220,000 in Q4 compared to a much smaller gain that had been guided by the company. International subscribers are growing as well, though from a very small base as Netflix has only recently begun expanding. "The adoption of the service in the U.K. & Ireland is taking place at a faster rate than it did in Canada at launch and shows that these markets may not be as saturated or competitive as originally feared," Barclays Capital analyst Anthony J. DiClemente notes.
  • On competition, Netflix's competition is growing. Netflix said it expects Amazon to start offering a competing service at a smaller price soon, doesn't think of Hulu as a competitor because it also has ads and thinks its biggest competition is "TV Everywhere" offerings such as HBO GO. Indeed, Netflix is basically trying to build a new HBO, which is distinguished by some premium content, transparent pricing, ease of use and availability everywhere. If HBO starts doing all that, Netflix doesn't have much of a comparative advantage.

In other news...

Android captured 39% of tablet OS market share last quarter, according to research firm Strategy Analytics. The number is misleading though because it includes the Kindle Fire, which technically runs on an Android base but operates its own content ecosystem. The iPad, on the back of Apple's monster quarter, unsurprisingly remained dominant with 58% of the market.

Nintendo posted terrible earnings, with a 61% drop in quarterly profit and forecasting a deeper annual loss than expected, its first ever. Nintendo makes most of its money in mobile gaming, which is being disrupted by smartphone platforms. That being said, the company has been written off before and bounced back with the extremely successful Wii.

Rovio will launch a version of Angry Birds on Facebook on Valentine's Day, February 14. It's the first time the game has been available on the social platform, and is guaranteed to make a big splash as it tries to compete with Zynga, which has so far dominated Facebook games. See our earlier explainer on Rovio here →

U.S. mobile ad spending may reach $2.61 billion this year, says eMarketer — higher than its earlier estimate of $1.8 billion. It's a big increase, but the research firm says Google's showing in mobile search advertising has been "exceptional" — and Google is by far the leader of the pack in mobile ads.

Nokia's Lumia 900 Windows phone will launch in the U.S. on March 18 for as low as $99.99 with a two-year contract, according to BGR. At such a low price point, we would expect the Lumia to make a splash in the market. The smartphone race is still wide open and we believe the Nokia-Microsoft partnership stands a chance, as we wrote in December→

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