January 25, 2012 / 9:18 PM / 8 years ago

Netflix shares surge as customer base grows

LOS ANGELES (Reuters) - Netflix Inc reversed a customer slide by adding more than 600,000 new U.S. subscribers in the fourth quarter, and its revenue beat Wall Street expectations, pushing shares up 13 percent.

Netflix's Chief Executive Officer Reed Hastings speaks during an interview with Reuters in Buenos Aires September 7, 2011. REUTERS/Enrique Marcarian

The video rental company, which revolutionized the home video industry but in 2011 outraged customers with a surprise price hike and a botched attempt to split off its DVD-mail service, posted a 47 percent leap in fourth-quarter revenue to $876 million.

That outpaced an average forecast for $857.9 million, according to Thomson Reuters I/B/E/S. Earnings per share hit 73 cents, beating an average forecast of 55 cents.

B. Riley & Co analyst Eric Wold said Netflix reassured Wall Street it was winning new customers and wasn’t hurt by its growing competition. Streaming subscribers were higher than expected and a projected first-quarter net loss amid an international expansion was smaller than many feared, he said.

“That’s going to be comforting to people,” Wold said.

Netflix lost more than 800,000 U.S. customers in the third quarter of 2011 after an uproar over a price hike and now-aborted plan to rent DVDs under the name Qwikster. The company’s share price plummeted from $304 in July to $62 in November.

Shares rose 13 percent to trade above $107 in after-hours trading following the earnings report on Wednesday. They had ended at $95.04, up 2.6 percent, in the regular session on Nasdaq.

In a letter to shareholders, Netflix CEO Reed Hastings, a Wall Street darling until the pricing and other missteps last year, stuck to previous forecasts of bumping up margins by about 1 percentage point every quarter as the company shifts customers from its DVD-by-mail service onto instant streaming.

To keep up that momentum, Netflix has been writing hefty checks to acquire more TV shows and movies for its streaming service. On Wednesday, Hastings predicted that while content acquisition costs will continue to increase quarter by quarter, that pace of growth will begin decelerating in 2012.

Netflix still faces a deluge of competition, a tarnished brand, and a costly expansion that will erode bottom lines, at least in the short term.

“They have kind of righted the ship in the near term,” Morningstar analyst Michael Corty said. “The question investors need to ask is how are they really going to grow this domestic business, not just this quarter but over the next several years.”

Reporting by Lisa Richwine; Editing by Gary Hill

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