5 Hidden Surprises in Netflix's Great Quarterly Report

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By now, you've probably seen Netflix's (NFLX) latest quarterly report picked apart a zillion ways.

Shares of the leading video service opened sharply higher on Tuesday after it posted blowout results. Revenue, adjusted earnings, and subscribers all clocked in ahead of Wall Street expectations. Investors like that, of course. However, when we dig deeper into the strong financial report and subsequent conference call, we're going to pull out some gems that may surprise you.

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5 Hidden Surprises in Netflix's Great Quarterly Report

There are now 36.3 million streaming subscribers worldwide, and a big reason for Netflix's success is that the value proposition of $7.99 a month for an unlimited buffet of video titles is too juicy to let go.

Netflix points out that it served up 4 billion hours of content to its streaming customers during the first three months of the year. Divide that by the midpoint of the 33.2 million streaming accounts that Netflix had when the year began and the 36.3 million that it had three months later and you get an average of 115 hours of content per member during the quarter -- or roughly an hour a day.

Yes, Netflix is that magnetic. Worrywarts arguing a couple of years ago that premium entertainment services have a history of peaking around 25 million don't realize that Netflix is rewriting the rules.

"Hemlock Grove" -- Netflix's latest exclusive series -- began streaming late last week.

The reviews have been mixed, and that's a far cry from the consistent raves that its licensed "House of Cards" series received two months ago. However, Netflix revealed that "Hemlock Grove" attracted more viewers during this past debut weekend than "House of Cards" did in its first weekend back in February.

Netflix points out that the creepy Eli Roth-helmed series is faring well with young adults, and that's a jaded group that probably ignores the reviews of older critics. We still don't know if folks will stick to the series the way that many did as they went through all 13 episodes of "House of Cards," but it's a good start.

In a surprising move, Netflix revealed that it begin offering a streaming plan that allows as many as four members to be online at the same time for 50 percent more than the current plan, which only allows for two simultaneous streams.

Netflix isn't banking on the new $11.99 a month plan to move the needle. It emphasized twice during its call that it doesn't expect more than 1 percent of its subscribers to upgrade to the new offering. However, as large families lean on Netflix across a growing number of supported devices, upgrading to four simultaneous streams will be an easy sell.

More importantly, this is the first time that Netflix has added a new option to the $7.99 a month streaming plan it introduced in 2010. It could be a taste of more customized plans in the future.

 

Netflix has made no bones about the future of its DVD rental business. CEO Reed Hastings has argued that it's DVD-based mail-order accounts will continue to shrink with every passing quarter. Netflix closed out the quarter with 7.98 million DVD subscribers at the end of March, 240,000 fewer than it had three months earlier.

Netflix has routinely provided subscriber, revenue, and contribution profit guidance for its streaming and DVD businesses. On Monday, it only provided contribution profit guidance for its DVD business. Netflix expects this to be the case in the future, as the number of DVD customers and the dwindling revenue they generate continues to shrink.

Photo: Michael C. Rael, Flickr.com

As Netflix families will attest, a problem with sharing a Netflix streaming account in an immediate family is that Netflix doesn't distinguish between viewers. It offers recommendations based on what the accounts are watching, and that's a problem for the quality of the suggestions.

Netflix is addressing that by testing individual settings. The new Profiles feature will ideally begin producing better recommendations so your toddler can watch "Yo Gabba Gabba!" and your spouse can catch "How I Met Your Mother" without getting in the way of your affinity for "Breaking Bad."

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Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our newsletter services free for 30 days.
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