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Netflix adds 2.3M more US subscribers in banner 4Q

Thu, 01/23/2014 - 1:04pm
The Associated Press

Netflix's fourth-quarter earnings soared six-fold as the Internet video service added another 2.3 million U.S. subscribers to burnish its status as one of the world's most popular entertainment outlets.

The financial results announced Wednesday topped analyst estimates, and Netflix basked in Wall Street's adulation. The company's stock surged $58.57, or more than 17 percent, to $392.30 in extended trading.

If the shares behave similarly in Thursday's regular session, the stock will hit its highest level since Netflix Inc. went public nearly 12 years ago.

Investors tend to focus more on Netflix's subscriber growth because the widening audience provides the company with the means to negotiate the rights to show even more compelling content to show in the future.

"Internet video is catching hold," Netflix CEO Reed Hastings said in a Wednesday interview with The Associated Press. "Consumers love that they can watch what they want when they want it. There is just a lot of consumer appetite for this."

Netflix ended December with 33.4 million U.S. subscribers who stream video over high-speed Internet connections, up from 31.1 million in September. The company picked up another 1.74 million subscribers outside the U.S. to end last year with 10.9 million international customers.

People are still flocking to the service. Netflix expects to gain an additional 2.25 million U.S. subscribers during the first three months of this year.

The strong showing follows a year in which Netflix's stock nearly quadrupled in a resounding comeback from a steep downturn triggered during the summer of 2011 after the Los Gatos, Calif. company split apart its Internet video service and DVD-by-mail service. The division resulted in price increases of as much as 60 percent for customers who wanted to keep both options.

Hastings apologized and the uproar eventually died down as the company began stockpiling its $8-per-month streaming service with more original programming, such as the Emmy-award winning "House of Cards." The second season of that series will be released Feb. 14, contributing to management's optimism about its subscriber growth for the current quarter ending in March.

As more people connect their TVs to the Internet and buy mobile devices, Netflix's streaming service is emerging as a must-have pastime. Meanwhile, the DVD-by-mail service is gradually dying as more subscribers abandon watching video on physical discs. The company ended December with 6.9 million DVD subscribers, down from 13.9 million in September 2011.

In a reflection of the DVD's steadily declining role, Netflix disclosed plans to make a slight change in the appearance of the red envelopes that deliver the discs. The envelopes will now be stamped with "dvd.netflix.com," instead of Netflix's stand-alone brand in an effort to make the company's name even more synonymous with Internet streaming.

Netflix earned $48 million, or 79 cents per share, during final three months of last year. That compared to $8 million, or 13 cents per share, at the same time in 2012.

Analysts surveyed by FactSet had predicted average earnings of 65 cents per share for the just-completed quarter.

Revenue rose 24 percent from the previous year to nearly $1.17 billion, just slightly above analyst forecasts.

On the Call: Netflix CEO Reed Hastings

Netflix's Internet videoservice has never been more popular, but its future growth could be affected by a federal appeals court ruling that overturned regulations governing online access.

The court decision issued last week concluded that the Federal Communications Commission doesn't have the authority to require Internet service providers to give their customers equal access to all websites. The evisceration of the "Net neutrality" protection raised the specter of Internet service providers, or ISPs, slowing the speed of Netflix's streaming service unless the company paid additional fees to ensure its optimal performance.

If that were to happen, Netflix Inc. might either have to raise the price of its $8-per-month service or settle for lower profits.

Netflix CEO Reed Hastings indicated he doesn't view the loss of net neutrality as a major threat, primarily because Netflix's service is one of the main reasons that millions of people are willing to pay $60 to $80 per month for high-speed Internet service. He elaborated on his theory Wednesday in response to an analyst's question during a conference call discussing Netflix's fourth-quarter earnings.

QUESTION: What is the impact of the net neutrality ruling last week and what is your expectation for how the ISPs will act in the near-term?

ANSWER: There's some draconian scenarios where some ISPs block Netflix, but we think that is very unlikely. And the most likely scenario, at least in the near-term, is that there is no real change. And the reason is if ISPs, especially major ISPs, were to contemplate blocking Netflix or other services, it would significantly fuel the fire for more regulation, which is not something that they're interested in. So, you know, in the long-term we still need to figure out what it means and how that works out, but I think in the short term, it's very likely that there's no change.

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