By Lisa Richwine
Jan 23 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 34 percent higher.
The dominant U.S. video rental company had warned three
months ago that it expected a loss for the October to December
period as it paid startup costs for an aggressive expansion into
Scandinavia and other foreign markets.
Netflix beat that guidance by reporting $8 million in net
income for the fourth quarter, or 13 cents per share. Revenue
rose to $945 million. The company also forecast it will add 1.7
million members in the first three months of 2013, though it
forecasts net income to be "relatively flat" due to declining
profit from the DVD business and higher global operating costs.
Shares of the company surged 34 percent after Netflix
released its results, reaching $138.14 in after-hours trading,
after closing at $103.26.
"They did surprisingly well with subscriber growth and
profitability," Lazard Capital Markets analyst Barton Crockett
said. "It was a very good quarter."
Netflix said it added 2.1 million customers during the
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 gained 1.8 million
subscribers. The total Netflix subscriber base for Latin
America, Canada and parts of Europe reached 6.1 million.
The holiday season was "particularly strong, driven by
consumers buying new electronic devices, including tablets and
smart TVs" that offer Netflix's service, CEO Reed Hastings and
CFO David Wells said in a letter to investors.
The U.S. DVD-by-mail service, which Netflix is moving away
from, shrunk by 380,000 customers to 8.2 million.
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.
Critics question Netflix's ability to keep writing large
checks to Hollywood TV and movie studios while facing
competitors such as Hulu, Amazon.com Inc, Redbox
Instant by Verizon, a joint venture between Coinstar Inc's
Redbox and Verizon, plus video-on-demand
offerings from cable TV providers.
Netflix said it expected more U.S. streaming growth in the
first three months of 2013 compared with a year ago. "The fact
that our growth remains this strong despite intensifying
competition, and our already substantial U.S. market
penetration, underlines the large opportunity ahead," Hastings
and Wells said in their letter.
In December, Netflix signed a deal for exclusive rights to
Walt Disney Co movies starting in 2016.
The company also attracted interest from activist investor
Carl Icahn, who bought nearly 10 percent of the company and said
it appeared ripe for a takeover. "We have no further news about
his intentions, but have had constructive conversations with him
about building a more valuable company," Hastings and Wells