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Netflix Optimistic on Subscriber Growth

2 Jan, 2003 By: Enrique Rivero

Online DVD rentailer Netflix Inc. said that its subscriber base grew 88 percent in last year's fourth quarter to 857,000, up from 456,000 in the like year-ago period. The Los Gatos, Calif.-based company had estimated Dec. 4 that subscribers would number between 840,000 and 870,000.

The company also expects to report better-than-anticipated fourth quarter churn Jan. 15, when it releases its financial results. Dec. 4, the company also lowered its guidance for churn to 6.6 percent from a prior 7 percent.

Sequentially, subscriptions grew 15 percent versus the third quarter, the company said.

Of the 857,000, 796,000 — or 93 percent — were paying subscribers and the remaining 7 percent were new trial subscribers. According to the company, 88 percent of subscribers in fourth quarter 2001 were paying subscribers. In last year's third quarter, 95 percent of the total represented paying subscribers and the rest were new trial subscribers, the company said.

The bump in new trial subscribers jumped in the fourth quarter compared to the third because of the seasonal growth in their numbers late in the year-end period.

Household penetration in the San Francisco Bay area, where the company is headquartered, jumped to 3.8 percent in the fourth quarter compared with 3.5 percent in the third quarter and 2.1 percent fourth quarter 2001. In the rest of the country, household penetration averaged 0.73 percent in the fourth quarter, up from 0.63 percent in the third quarter and 0.39 percent in fourth quarter 2001.

Research firm NPDTechworld estimates that some 44 percent of United States households had a standalone DVD player as of the end of 2002.

Netflix expects to release its fourth quarter financial results after the markets close Jan. 15. The company said it will routinely report churn and new trial subscriber figures so investors can interpret those numbers within the context of other financial information such as gross margins and subscriber acquisition costs.

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