UPDATE 3-Netflix signs up 2.3 mln U.S. subscribers; shares surge

Wed Jan 22, 2014 6:25pm EST

By Lisa Richwine and Ronald Grover 
    LOS ANGELES, Jan 22 (Reuters) - Netflix Inc added
more than 2.3 million U.S. households to its TV and movie
streaming service in the fourth quarter, pushing its profit
above Wall Street expectations and sending its shares up 17
percent in after-hours trading.
    The world's largest video streaming company on Wednesday
reported net income of $48 million for the quarter, up from $8
million a year ago. Earnings-per-share were 79 cents, Netflix
said in a statement, beating the 66 cents average forecast of
analysts surveyed by Thomson Reuters I/B/E/S.
    The strong U.S. subscriber growth, a closely watched
barometer of company performance, came in at the top end of
Netflix's forecast range. Netflix signed up 1.74 million new
customers in foreign markets, bringing its worldwide total to
44.4 million.
    Answering critics who question how big Netflix can grow, the
company said it expected to add more U.S. subscribers in the
first quarter of 2014 than in the year-ago period.
    Netflix shares rose more than 17 percent to $391.77,
eclipsing the all-time intraday trading high of $389.16 the
stock hit in October.
    Reed Hastings, Netflix's CEO, discounted a recent U.S. court
ruling on "net neutrality" that some analysts said might lead
broadband providers to charge the company for quick delivery of
its video content, possibly inflating costs for the company.
    "Our economic interests are pretty aligned," he said.
Broadband providers want to sell higher-priced service with
faster speeds, he explained, and need content for it from
services like Netflix that work well with faster speeds.
    The CEO didn't comment on reports that it had talked to
cable operators about agreeing to have Netflix accessed from
their set-top boxes.     
   "People will use Netflix anyway, and I'd think (cable
operators) would rather have them use it on their boxes rather
than on Roku or some other box," Hastings said.
    "We expect this momentum to continue in Q1 with net
additions of 2.25 million to exceed the prior year by about 11
percent," the company said in its quarterly letter to
shareholders. 
   
 
    Netflix also reported shrinking losses in international
markets. "The international losses are going to subside and
therefore show the strength of the overall streaming business,"
said FBN Securities analyst Shebly Seyrafi, who rates Netflix
"outperform."
    The company ended 2013 as one of the year's highest-flying
stocks, surging 297.6 percent, as investors bet the company
would keep dominating the subscription video market and expand
its roster of customers who pay $8-a-month for unlimited
streaming of movies and TV shows.
    In its letter, the company acknowledged it had been testing
variations of the $8 monthly charge "at various price points."
The company said "eventually" it hoped to offer three pricing
options "to fit everyone's taste."
     It said it plans a "substantial European expansion" later
this year, but did not disclose the markets it is eyeing. The
company currently operates in Canada, Latin America, and seven
European countries.
    The company said "a prudent step" would be for it to raise
$400 million in long-term debt. It raised $500 million last
year.
    Netflix is investing in original programming including
"House of Cards" and "Orange is the New Black" to attract and
keep subscribers. If faces competition from online video players
like Amazon.com Inc and Hulu, plus on-demand content
from cable operators.
    For January through March, Netflix projected it would add
2.25 million U.S. customers, it told shareholders.