* Netflix had warned of a Q4 loss
* But number of subscribers jumped in strong holiday season
* Fourth-quarter profit totals $8 mln
* Shares gain 35 percent in after-hours trading
By Lisa Richwine
Jan 23 (Reuters) – Netflix Inc surprised Wall
Street on Wednesday with a quarterly profit after the video
subscription service added nearly 4 million customers in the
United States and abroad, sending its shares 35 percent higher
in after-hours trading.
The dominant U.S. video rental and streaming company had
warned three months ago a letter to investors that it was likely
to see a loss for the October to December period, attributing it
to startup costs for its expansion into Scandinavia.
But Netflix underestimated the impact of the busy holiday
season, when sales of tablets, phones and Internet-connected TVs
helped boost subscriptions even as the company faced competition
from companies such as Hulu and Amazon.com Inc.
Netflix reported $8 million in net income for the fourth
quarter, or 13 cents per share. Revenue rose 8 percent to $945
million from the same quarter a year earlier.
“We just saw tremendous growth over the holidays,” Netflix
CEO Reed Hastings said in an interview.
The company also forecast it will add 1.7 million members in
the first three months of 2013, though it predicts net income
will be “relatively flat” due to declining DVD profits and
higher global operating costs.
Shares of the company surged 35 percent to $139.80 in
after-hours trading. They closed at $103.26, up nearly 6 percent
before its earnings announcement.
“They did surprisingly well with subscriber growth and
profitability,” Lazard Capital Markets analyst Barton Crockett
said. “It was a very good quarter.”
Wall Street analysts on average had expected Netflix to
report a quarterly loss of 13 cents per share, according to
Thomson Reuters I/B/E/S. A year ago, Netflix had earnings of $41
million, or 73 cents per share, on revenue of $876 million.
Activist investor Carl Icahn, who holds an almost 10 percent
stake in Netflix and who has said that he felt the company was
an attractive takeover target, has seen the value of his shares
increase by $445.3 million to $768.9 million since he started
buying them in September.
“We have no further news about his intentions, but have had
constructive conversations with him about building a more
valuable company,” Hastings and CFO David Wells said in a
quarterly letter to investors.
Netflix reported full-year net income of $17 million in
2012, a 92 percent decrease from a year earlier as the company’s
costs increased, on revenue of $3.6 billion.
SEEKING ORIGINAL CONTENT
Skeptics have questioned Netflix’s ability to keep writing
large checks to Hollywood TV and movie studios for the rights to
their content. In addition to Amazon and Hulu, competitors also
include Redbox Instant by Verizon, a joint venture between
Coinstar Inc’s Redbox and Verizon, plus
video-on-demand offerings from cable TV providers.
But the Los Gatos-based company said it added 2.1 million
customers during the fourth quarter to its U.S. streaming
business, its largest segment, for a total of 27.2 million at
the end of 2012. In international markets, the company signed up
1.8 million new customers.
Netflix said it expects more U.S. streaming growth in the
first three months of 2013 compared with a year ago. The company
next week will release the first 13 episodes of its political
drama “House of Cards” starring Kevin Spacey, part of its push
into exclusive original series that it hopes will bring in new
customers.
“The fact that our growth remains this strong despite
intensifying competition, and our already substantial U.S.
market penetration, underlines the large opportunity ahead,” the
letter said.
In December, Netflix signed a deal for exclusive rights to
new Walt Disney Co movies starting in 2016. Hastings
said he would like to strike the same type of arrangement to
stream movies from Sony Corp’s movie studio, though he
added that “there’s no specific piece of content we must have.”
With Sony, “our appetite’s just like it was for Disney. It’s
strong. We’re interested,” he said.
The U.S. DVD-by-mail service, which Netflix is moving away
from, shrunk by 380,000 customers in the fourth quarter to 8.2
million.
