UPDATE 4-Netflix adds 2.3 mln U.S. subscribers in Q4; shares surge

Wed Jan 22, 2014 8:01pm EST

(Adds CEO comments on pricing)
    By Lisa Richwine and Ronald Grover 
    LOS ANGELES, Jan 22 (Reuters) - Netflix Inc added
more than 2.3 million U.S. customers in the fourth quarter,
sending its shares up 17 percent in after-hours trading, and
said it was testing different pricing plans for its monthly TV
and movie streaming service.
    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 also 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 could grow,
the company said it expected to add more U.S. subscribers in the
first quarter of 2014 than in the year-ago period.
    "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 shares, one of the highest-flying stocks of 2013,
jumped more than 17 percent in after-hours trading to $391.77,
eclipsing the all-time intraday trading high of $389.16 the
stock hit in October.
    In its shareholder letter, Netflix noted it had been testing
variations of its $8 monthly charge "at various price points."
The company also said it "eventually" hopes to offer three
pricing options "to fit everyone's taste."
    Existing members would receive "generous grandfathering of
their existing plans and prices," the letter added.
    In an interview, Netflix CEO Reed Hastings said it "could
take longer than a year" for the company to set new prices. 
    "It just depends on when we feel comfortable we've got
something that feels really fair and appropriate to consumers,"
he said.
    Netflix suffered from a consumer backlash and stock plunge
after it announced an unpopular price increase in July 2011.
    Hastings 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 and need content for it from services like Netflix
that work well with faster speeds, Hastings explained.
    The CEO said he would like to reach a deal with a U.S. cable
operator 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.
      
 
    
    Netflix is investing in original programming, such as the
"House of Cards," and "Orange is the New Black" series to
attract and keep subscribers. If faces competition from online
video players like Amazon.com Inc and Hulu, as well as
on-demand content from cable operators.
    But the company 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 an
"outperform."
    The company projected it will add 1.6 million customers in
foreign markets from January through March.
    It said it plans a "substantial European expansion" later
this year, but did not disclose the markets it is looking at.
The company currently operates in Canada, Latin America and
seven European countries.
    Netflix shares ended 2013 as one of the year's biggest
gainers, 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.
    The company said "a prudent step" would be for it to raise
$400 million in long-term debt. It raised $500 million last
year.

 (Reporting by Lisa Richwine; editing by Andrew Hay, G Crosse)
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