Netflix Inc. (NFLX:US), the world’s largest subscription streaming service, surged to a record after projecting customer growth that topped analysts’ estimates and saying it may charge new users more to share accounts.
The shares rose 16 percent to $388.72 at the close in New York. The stock had the biggest gain in the Standard & Poor’s 500 Index last year.
Chief Executive Officer Reed Hastings is testing new pricing strategies that would increase revenue and profit, and investing in growth to keep the company ahead of competitors HBO, Amazon.com Inc. and Hulu LLC. A price increase in Ireland suggests Netflix can follow suit at home without triggering a customer revolt like the one that cost it subscribers in 2011.
“Management appears more confident than at any time in their history,” said Michael Pachter, an analyst with Wedbush Securities in Los Angeles who has a sell rating on the stock. “It’s either a sign that things are really great or that they’re starting to believe their own hype.”
Netflix forecast 2.25 million new domestic subscribers this quarter, according to a statement yesterday on its website. The Los Gatos, California-based company predicted first-quarter profit of $48 million, or 78 cents a share, compared with analysts’ projections of 75 cents.
Hastings has resisted calls to raise prices by investors who cite the company’s programming obligations, which now stand at $7.3 billion.
Now Netflix is considering tiered alternatives to its $7.99-a-month online subscription, including an $11.99 option for customers who share their accounts with friends and family. In December, the company offered some new customers a $6.99 starting plan that limited viewing to one screen at a time.
“Eventually, we hope to be able to offer new members a selection of three simple options to fit everyone’s taste,” Hastings said yesterday in a letter to investors.
The company may follow the model of a recent price increase in Ireland, where current users were told they would not see price increases for two years, he said.
“We’re still researching and trying to figure out the best way to move forward,” Hastings said in an interview. “Current subscribers will get to keep their current plan and price for a generous time period.”
With Netflix’s U.S. subscriber base topping that of Time Warner Inc. (TWX:US)’s HBO, investors are trying to gauge how big the company can be. Total online subscribers grew to 44.4 million worldwide in the fourth quarter, including 41.4 million paid.
The company forecasts first-quarter domestic streaming revenue of $796 million, with an operating profit of $198 million. It predicts international streaming will generate a loss of $42 million on revenue of $267 million.
Fourth-quarter net income soared more than fivefold to $48.4 million, or 79 cents a share, Netflix said on its website, beating the 66-cent average of 31 analysts’ estimates (NFLX:US) compiled by Bloomberg. Domestic subscribers, including free trials, rose to 33.4 million, compared with the 33.1 million average of 10 estimates compiled by Bloomberg. International losses shrank.
Fourth-quarter sales grew 24 percent to $1.18 billion from $945.2 million a year earlier, beating estimates of $1.17 billion. Net income (NFLX:US) totaled $7.9 million, or 13 cents, a year earlier. The company’s international loss shrank to $57 million from $105 million a year earlier.
In October, the company forecast profit of $29 million to $45 million, or 47 cents to 73 cents a share.
Netflix potentially faces higher costs after a U.S. appeals court this month overturned the Federal Communications Commission’s so-called net neutrality rules.
If upheld, cable-TV and telephone providers could demand Netflix pay fees for faster Web service to customers’ homes.
Internet service providers are unlikely to interfere with Netflix anytime soon, Hastings said yesterday on a video conference call with analysts.
“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 they’re interested in,” Hastings said.
Domestic paid users rose 5.9 percent to 31.7 million from the third quarter. Outside the U.S., the total grew 20 percent to 9.72 million from the previous quarter.
Netflix also said it plans to raise $400 million in additional debt to finance international expansion and original programming over the next few years.
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