Netflix Widens Its Loss Forecast

Online DVD renter Netflix Inc. on Monday said its first-quarter loss would be larger than forecast because marketing expenses are rising.

But the higher spending on television and online promotion also has led to faster subscriber growth. The company raised its quarterly revenue forecast.

Los Gatos, Calif.-based Netflix said its net loss would widen to $5.6 million to $8.1 million from a previous forecast of $1.2 million to $3.7 million.

The company raised its revenue forecast to $96 million to $101 million, up from $94 million to $99 million.

Shares fell 36 cents to $35.02 in regular Nasdaq trading. They fell as low as $33 in after-hours trading after the announcement.

Netflix is spending more on advertising as Wal-Mart Stores Inc., the world’s largest retailer, and Blockbuster Inc., the biggest video store chain, are starting competing services that charge monthly subscriptions for DVD rentals. Netflix started advertising on television last year and said it was buying more ads on the Internet.

“It’s a land grab right now,” said Thomas Wyman, a fund manager with Husic Capital Management in San Francisco. “This occasionally happens where you see companies that want to ramp up their growth and there are near-term costs associated with it.” Husic owns about 650,000 Netflix shares.

Netflix charges $19.95 a month to customers who order DVDs from its Web site. They can keep as many as three at a time for as long as they wish. The company expects a subscriber base of 1.86 million to more than 1.93 million at the first quarter’s end, up from a previous estimate of 1.75 million to more than 1.82 million.

The company spends an average of $34 to $36 to acquire each subscriber. It takes about four months to recoup those costs for each new customer, Chief Financial Officer Barry McCarthy said.

“I view it, when all is said and done, as a positive,” said Derek Brown, financial analyst with Pacific Growth Equities.

Brown noted that the stock could fall today if momentum traders sell it. Netflix shares have risen steadily since trading around $3 in early October 2002.

“There are enough people looking for holes in this story that it wouldn’t surprise me to see it trade down, but I don’t think it should,” Brown said. “People will react to the headline without working through the business ... to see why certain parts are moving.”

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Bloomberg News and Reuters were used in compiling this report.