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Third quarter technology results season is off to a strong start Netflix (NASDAQ: NFLX) with better financial results than expected after the market closed on Tuesday. Revenues, earnings, and subscribers landed well ahead of the Wall Street and Netflix public forecasts, pushing the stock up initially on Wednesday during a rather dismal trading day.
Netflix is now the undisputed champion of premium video streaming, but that's not always the case. Ten years ago, it was still a company that relied on the physical rental of DVDs by mail. This reactivation activity is still current at Netflix and, although the number of accounts continues to contract (we are reduced to 2,828 million subscribers in this format), it remains an essential element of Netflix and possibly its future.
Source of the image: Netflix.
Eject the disc
Netflix is clearly a heavyweight of digital video these days, and that's why the title is the best performer of the S & P 500 since 2013. However, we can not ignore more than 2, 8 million people who receive a DVD and Blu-ray disc rental by mail. . The original model has survived, even though the company has experienced such a decline that it now accounts for just over 2% of its total business turnover and its number of people. 39; subscribers.
CEO Reed Hastings witnessed this situation shortly after the number of customers of his DVD package by mail peaked at nearly 20 million in 2010.
"We expect DVD subscribers to drop steadily every quarter, forever," he said in a call for results in early 2012, answering a question asking if DVD rentals would rebound. this year.
Hastings was right. DVD rentals have not bounced that year or any year. There has never even been a sequential rise. Most people think it's an endangered business, but it's also an important part of Netflix's ever-changing story.
Netflix is not likely to get rid of its DVD service as soon as possible. There are still homes that do not have sufficient connectivity to effectively broadcast digital content, and the platform also offers many movies and broadcasts that will never be available for the remaining 98% using the digital catalog. service growth.
There is also no reason to remove a ridiculously profitable service. Despite appearing to have been minimized, Netflix's mail order business accounted for 4.5% of total contribution profit. Streaming activity may be what's growing today, but its 39% contribution margin in the United States and 17% internationally will probably never be close to 58% it marks with its physical hirings.
At first glance, the mail order Netflix may seem like a bad tattoo, but there is art in this permanent ink. Netflix may have transferred its disk rental customers from its eponymous domain to its DVD.com hub many years ago, but it is a platform that could prove useful in the future if it ever cracked a sufficiently large foreign market where the streaming infrastructure not firmly in place. It's also a great place to indicate to US streaming subscribers that they want to have access to a TV show or an award-winning movie that's not available on Netflix.com . This could change as soon as the disk rental base becomes less than profitability, but for now, the two percentages of Netflix will continue to matter.
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