Netflix Stock Rises 14 Percent, Bests Estimates With Quarterly Earnings

Netflix original "Orange Is the New Black"
Netflix original "Orange Is the New Black"
 

Netflix said Wednesday it added 2.33 million subscribers in the fourth quarter, more than expected, ending with 31.71 million who pay for the service and 33.42 million total members. Netflix was expecting to add 2.01 million subscribers in the U.S. during the fourth quarter, and analysts were looking for 2.05 million.

Netflix surpassed HBO in terms of subscribers about a year ago, and Netflix CEO Reed Hastings during a video presentation Wednesday to discuss earnings joked that HBO chief executive Richard Plepler uses the password "Netflix Bitch" when signing into his Netflix account.

Plepler has said that it's not a big deal when HBO Go customers share passwords, prompting Hastings to say Wednesday: "So I guess Plepler, the CEO of HBO, doesn't mind me sharing his account information. So it's Plepler-at-HBO-dot-com and his password is 'Netflix Bitch'."

Internationally, Netflix added 1.74 million subscribers for a total of 9.72 million who pay for the service. Worldwide, Netflix now boasts more than 44 million members and it said Wednesday it should close the current quarter with 48 million.

Netflix said Wednesday it earned 79 cents a share while Wall Street analysts were expecting Netflix to earn about 66 cents per share. Revenue rose to $1.2 billion from $945 million in the year-ago quarter.

Netflix shares, which have advanced 240 percent in the past 12 months, closed 2 percent higher on Wednesday to $333.92 but quickly surged more than 14 percent during the after-hours session.

Hastings last year warned investors that Netflix shares were heavily traded by momentum investors who may be bidding the stock higher than warranted. Also last year, billionaire investor Carl Icahn cashed out about half of his stake in the company after quintupling his money.

In a letter to shareholders, Hastings and CFO David Wells writes of a new cost structure for members.

"Eventually, we hope to be able to offer new members a selection of three simple options to fit everyone's taste," they write.

The last significant change Netflix made along those lines was to split its streaming business from its DVD business -- including a name change for the latter -- a short-lived idea that didn't go over will with customers. This time around, Netflix seems to be taking a more incremental approach, and in the letter to shareholders the two executives stress that existing members would get "generous grandfathering of their existing plans and prices."

They also said in the letter that the company "in the coming months"  will use dvd.netflx.com for its DVD-related web pages and the address will be promoted on the red envelopes it uses to mail DVDs to customers.

Also in the letter, Hastings and Wells rave about Netflix original content, including Lilyhammer starring Steven Van Zandt, Turbo F.A.S.T. from DreamWorks Animation and The Short Game, an original documentary about grade-school golfers competing at a junior-level championship at Pinehurst.

"We could not be more pleased with -- and proud of -- our first slate of original content," the pair write.

One worrisome development addressed in the letter was Verizon's successful challenge of net neutrality rules, so that Internet Service Providers might no longer be required to treat all data on the Internet equally.

"In principle, a domestic ISP can now legally impede the video streams that members request from Netflix, degrading the experience we jointly provide," Hastings and Wells write. "The motivation could be to get Netflix to pay fees to stop this degradation. Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver."

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