(Recasts with analyst comments, updates shares to close)
By Lisa Richwine and Liana B. Baker
Jan 24 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
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.
When Icahn disclosed his stake in October, he said he felt
the company was an attractive takeover target.
"We have no further news about his intentions, but have had
constructive conversations with him about building a more
valuable company," Chief Executive Reed Hastings and Chief
Financial Officer David Wells said in a quarterly letter to
investors on Wednesday.
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 dominant U.S. video rental company saw shares reach 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 sunk 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 will 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
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
(Reporting by Lisa Richwin and Liana B. Baker; Editing by Nick
Zieminski and Tim Dobbyn)