• Will Netflix Report 20 Million Subscribers Later Today?

    Netflix will report its Q4 and full year 2010 earnings later today. There's no question that the results will come in very strong given the momentum the company had going into the holiday quarter. But one interesting question is whether Netflix will surpass the 20 million subscriber mark for the first time. While the number holds no other particular value than it being large and round, it would still be a significant milestone and also make Netflix the second largest video subscription company, by subscriber count, in the U.S. behind only Comcast (who it will pass at some point in the 1st half of 2011).

    For its part Netflix is forecasting to have ended Q4 with between 19 million and 19.7 million subscribers. That would represent an increase over Q3's 16,933,000 of between 2,067,000 to 2,767,000 subscriber additions. To hit the 20 million number, Netflix would have to gain 3,067,000 subscribers, or about 10.8% more than the high end of its guidance. One way to gauge the likelihood of this happening is to look at the company's recent actual subscriber additions vs. its guidance. Per the chart below, in 2 of the last 3 quarters, the company has in fact beaten the high end of its forecast, in Q1 '10 (by 10.9%) and in Q3 '10 (by 13.7%). It's also worth noting that Q4 '09's sub gain of 1,159,000 was more than double its Q3 '09 addition of 510,000. While I wouldn't expect a Q4 '10 to Q3 '10 ratio like that, if it were to happen then Netflix would be far above 3 million in Q4.

    It's a given that companies try to under-promise and over-deliver when it comes to forecasting (Apple is a famous practitioner of this approach, somehow managing to blow out its forecasts one quarter after another). But in Netflix's case it also faces the genuine challenge of trying to discern the demand for its still relatively new Watch Instantly streaming feature, which caught the public's imagination. The Q4 forecast, with a larger-than-typical 700K subscriber range, seems to hint at this difficulty. In fact, Netflix's original 2010 forecast, made in its Q4 '09 earnings release, called for ending 2010 subscribers of just 15.5 million to 16.3 million, demonstrates how much 2010 sub growth was akin to holding a tiger by its tail.

    Netflix has also been the primary beneficiary of the burst of interest in connected devices that allow online video viewing on TVs. These devices heavily promote the familiar Netflix brand, as do the retailers of these devices, like Best Buy, Amazon, etc. There's no other brand that helps drive the sales of these device quite like Netflix, which is one reason that it just gained a coveted dedicated button on 11 different consumer electronics companies' remote controls. Though there's yet to be any good data on connected device sales in Q4, the rebounding economy and higher awareness of streaming generally and Netflix in particular, will certainly have created additional momentum for Netflix in Q4.

    If Netflix doesn't hit the 20 million mark when it reports Q4, then it will in Q1, when the remaining holiday device buyers sign up for service. But if it achieves the milestone in Q4, it will have added at least 7.7 million subscribers in 2010, growing its subscriber base an astounding 63%, and also more than doubling in size in the past 2 years. Quite a run by any measure.

    What do you think? Post a comment now (no sign-in required).

    (Note: Yesterday I did a on-stage interview with Netflix's content chief Ted Sarandos at the NATPE conference; I'll summarize the highlights of the session later this week.)