* Shares enjoy biggest single-day gain after results whopper
* Stock still half its July 2011 peak
* Concerns easing about big bills for content, expansion
(Adds comments from Icahn in paragraphs 6-10)
By Lisa Richwine and Liana B. Baker
LOS ANGELES/NEW YORK, 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 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
"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
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
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
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
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, Tim Dobbyn and Richard Chang)