LOS ANGELES/NEW YORK (Reuters) - Netflix Inc impressed Wall Street with a surprisingly strong holiday quarter that eased near-term concerns about its costly international expansion and its movie and TV bill, sending its shares skyrocketing 42 percent.
The jump represented the largest single-day gain from Netflix, though shares were still trading at just under half their record of more than $300 in July 2011, when the company was celebrated on Wall Street for pioneering a video service that rocked the traditional media industry and Hollywood.
On Thursday, a string of industry analysts upgraded Netflix shares or raised their price targets after the company reported better-than-expected quarterly profit and strong subscriber growth around the world. Many said Wednesday's report of an $8 million fourth-quarter profit signaled a turnaround for the company, even though risks remained.
"The worst is behind them," said Raymond James analyst Aaron Kessler, who raised his Netflix recommendation to "market perform." "The margins are much better, they are getting better marketing efficiency, the content spend is slowing."
Shares of Netflix rose $43.60 to $146.86 on Nasdaq on Thursday, their highest level since September 2011.
One of Netflix's biggest shareholders, activist investor Carl Icahn, saw a massive gain since he began buying shares in September. Icahn's nearly 10 percent stake, bought for $321.4 million, has increased to $807.7 million based on Thursday's closing share price.
Icahn told Reuters in an interview on Thursday he still owned all of the shares he had bought, and felt Netflix was poised to take advantage of consumers' shift toward Internet video.
"I felt a secular change was happening and is still happening in the industry, and I think that's manifesting itself as we speak," he said. "I still feel (Netflix) has a great deal of potential."
Icahn said he had met with Netflix Chief Executive Reed Hastings three or four times to offer advice. He praised the company's move to produce original content and its recent deal to stream new Walt Disney Co movies starting in 2016.
Those steps "were very constructive," Icahn said.
When Icahn disclosed his stake in October, he said he felt the company was an attractive takeover target for another media company. Icahn said on Thursday he still held that view.
In November, Netflix adopted a "poison pill" defense to prevent a takeover by someone not approved by the board.
On Wednesday, Hastings and Chief Financial Officer David Wells said in a letter to investors: "We have no further news about his intentions, but have had constructive conversations with him about building a more valuable company."
Even with Wall Street's newfound optimism, several analysts were seated in the neutral camp, waiting to see how Netflix will fare over the rest of the year amid growing competition. The company forecast subscriber gains for the first three months of 2013 but did not give guidance beyond that.
Netflix said it is evaluating potential new markets but does not plan to enter other countries in the first half of this year. Some critics had accused Netflix of expanding too quickly.
How many subscribers Netflix adds in 2013 will be key to its ability to pay Hollywood studios for movies and TV shows that are available on the Netflix streaming service. "That's still a key question for investors. We will see as we go through 2013 how strong the domestic streaming adds are," said Kessler, the analyst.
The dominant U.S. video rental company's shares rose as high as $304.79 in July 2011, just before it provoked a customer backlash with an unpopular price increase and other missteps. Netflix stock sank to $53.80 in September 2012.
Firms that either raised their target price or upgraded their ratings on Netflix on Thursday included Wedbush Securities, Lazard Capital, Bank of Montreal, Macquarie, Janney Capital, Raymond James and Barclays.
Netflix had warned investors three months ago that it was likely to record a loss in the October to December period. But on Wednesday, Hastings said the company had underestimated the level of new signups over the holidays, when sales of tablets and Internet-connected TVs helped lift Netflix subscriptions.
In its earnings report, the company predicted it would add as many as 2.1 million U.S. streaming members in the first quarter, more than it gained during the first three months of last year.
Macquarie analyst Tim Nollen upgraded Netflix to "neutral" and raised his price target to $120 from $50. The fourth-quarter results "puts our negative view to rest," he said in a note to clients.
But Nollen said "things to worry about" included competition in the video streaming market from rivals such as Amazon.com Inc and Coinstar Inc's Redbox.
"We still question Netflix's ability to drive (subscriber) growth to sustainably keep revenue ahead of content cost increases, and how Netflix can manage other operating costs like marketing and tech/development as well as it did in Q4," Nollen said.