Bloomberg News

Netflix Customer Gain of 2.05 Million Tops View; Shares Leap

January 23, 2013

Netflix Inc. (NFLX:US), the world’s largest online-video service, posted an unexpected fourth-quarter profit after subscriber growth beat its forecast, sparking a 34 percent rise in the stock.

Netflix signed 2.05 million new U.S. Internet subscribers in the fourth quarter, bringing the total to 27.2 million domestic online customers, according to a website statement today. The gain led to a quarterly profit of 13 cents a share, compared with analysts’ predictions of a loss.

Chairman and Chief Executive Officer Reed Hastings, who signed Walt Disney Co. (DIS:US) to an exclusive domestic streaming contract for films starting in 2016, is defying skeptics who have questioned the company’s ability to keep growing overseas and purchasing content while facing more competition at home. He said international losses will begin to shrink.

“Netflix is successfully balancing the costs of international expansion against the increasing profitability of its domestic business,” said Paul Sweeney, a Bloomberg Industries analyst.

Netflix surged 34 percent to $138.96 in extended trading after the announcement. The shares rose 5.6 percent to $103.26 at the close in New York, their highest in more than a year.

The stock has more than doubled from about $58 a share, where it was trading when billionaire Carl Icahn accumulated almost 10 percent of the stock, including options, for $168.9 million, according to filings. The value of his 5.54 million shares has risen by $448.6 million, including today’s gain in after-hours trading.

“We still own every share we bought and we believe it’s still got tremendous potential,” Icahn, 76, said today in an interview.

Constructive Talks

In his message to investors, Hastings said Netflix has had constructive conversations with Icahn about creating a more valuable company, without elaborating.

This quarter, Netflix forecasts sales of $1 billion to $1.03 billion, compared with analysts’ projections (NFLX:US) of $969.2 million. Results may range from break even to a profit of $14 million, or as much as 23 cents a share. Analysts estimate a loss of 7 cents. The company expects to add 1.3 million to 2 million domestic streaming customers this quarter.

“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 said in the statement.

Fourth Quarter

Netflix reported fourth-quarter net income of $7.9 million, compared with profit of $35.2 million, or 64 cents, a year earlier. Analysts had forecast a loss of 13 cents, the average of 28 estimates compiled by Bloomberg. Revenue rose 8 percent to $945.2 million, beating the $934.5 million average of 28 estimates.

In October the company said it could add as many as 2 million domestic online customers. The company finished the year with 33.3 million streaming subscribers worldwide and 8.22 million in the U.S. who get DVDs by mail.

Netflix surpassed 6 million international customers in the fourth quarter, which helped keep its loss in the segment to $105 million, less than the $113 million midpoint of its forecast. International losses will narrow to $87 million in the current first quarter and shrink further this year, the company said.

Netflix is investing in original programs to fend off competition from services including one from Amazon.com Inc., TV Everywhere options such as Time Warner Inc.’s HBO Go and a new service called Redbox Instant by Verizon, a joint venture of Verizon Communications Inc. and Coinstar Inc.’s Redbox unit.

Disney Deal

“House of Cards,” a political series featuring Kevin Spacey and Robin Wright, makes its debut on Feb. 1.

“We not only have a superior content offering due to our larger budget, but we are further along the experience curve when it comes to improving our user interface and delivering great quality streaming,” Hastings said.

Disney’s December deal to offer its full film slate including Marvel and Pixar movies on Netflix led some analysts to reexamine their views on the company’s prospects. On Jan. 18, Tony Wible, of Janney Montgomery Scott LLC in Philadelphia, recommended Netflix for the first time in six years.

Of 37 analysts (NFLX:US) who follow Netflix, six recommend the stock, 21 rate it hold and 10 say sell.

Netflix accounts for about a third of prime-time Web streaming, according to Sandvine Inc., a Waterloo, Ontario-based network services and research company. More than half of consumers ages 18 to 24 years old who have a TV connected to the Internet watch Netflix, according to researcher NPD Group, based in Port Washington, New York.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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Companies Mentioned

  • NFLX
    (Netflix Inc)
    • $459.01 USD
    • 4.48
    • 0.98%
  • DIS
    (Walt Disney Co/The)
    • $90.34 USD
    • 0.01
    • 0.01%
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