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Netflix stock soars after fourth-quarter results top forecasts

Netflix reports a small profit instead of a loss that had been expected and says it added 3.8 million subscribers worldwide. That sends its shares up 42%.

January 25, 2013|By Dawn C. Chmielewski, Los Angeles Times

Netflix Inc. has bounced back aggressively from a tumultuous period in which Wall Street punished the online video subscription service for failing to meet its own ambitious growth expectations.

The company's stock rose sharply Thursday after Netflix posted gains in U.S. subscribers and earnings in the fourth quarter that exceeded investor expectations. Shares in the Los Gatos, Calif., company jumped $43.60, or 42%, to $146.86. That's the biggest single-day leap in the company's history.

Netflix benefited from holiday purchases of Internet-connected televisions and tablet computers, which spurred demand for the service's movies and television shows. The addition of original programs, such as the hotly anticipated political drama "House of Cards" on Feb. 1 and new episodes of the cult-favorite Fox situation comedy "Arrested Development" in May, could attract more subscribers in the first half of the year.

"Both the rise of tablets and the rise of smart TVs are very helpful to us, and they're really the beginning of a trend around Internet-connected ecosystem devices," Netflix Chief Executive Reed Hastings told analysts during an earnings call Wednesday. "And certainly, the more convenient those devices get, the more people will feel comfortable watching and enjoying content on a wide range of devices."

Netflix's stock had slumped last summer, hitting a one-year low of $52.81 on Aug. 3, amid investor concerns that Netflix would fail to reach a stated goal of adding 7 million new domestic streaming subscribers by the end of the year. When Netflix formally revised its 2012 subscriber forecast in the third quarter and warned that it could lose money in the fourth quarter as it expanded into the Nordic market, the stock price dipped again.

Netflix's sagging share price attracted activist investor Carl Icahn, who on Oct. 31 disclosed in a regulatory filing his plans to acquire a nearly 10% stake in the company, saying that he found the stock to be undervalued. He said in interviews that Netflix might make an attractive acquisition target.

The company's fourth-quarter earnings report, covering the period that ended Dec. 31, struck an upbeat tone: The company added more than 2 million U.S. subscribers to its streaming service, beating analyst expectations that it would add only 1.55 million. Internationally, the service gained 1.8 million members, nearly triple the growth rate in the third quarter. That brings total global streaming subscribers to 33 million.

The company posted earnings of $7.9 million, or 13 cents a share, for the quarter, instead of an anticipated loss. Its revenue rose to $945 million, up 8% from a year earlier.

"Netflix posted impressive [fourth-quarter] results that came in ahead of our estimates across nearly all metrics," Anthony DiClemente, a media analyst at Barclays, wrote in a note to investors.

Macquarie Capital analyst Tim Nollen wrote that he initially believed that Netflix would not be able to add enough subscribers to cover its rapidly rising costs, especially as it faced increasing competition from other online distributors.

But several factors changed in the fourth quarter, he wrote. Rivals and Redbox have been slow to promote their offerings, and Netflix reached an exclusive content deal with Walt Disney Co. that allows the service, beginning in 2016, to stream new movies into the home at a time previously reserved for premium cable TV channels.

"In short — Netflix had quite the quarter," Nollen wrote.

Hastings sounded humble when a Wall Street analyst asked whether Netflix had succeeded in rebuilding the brand after the public backlash in 2011 that followed an unpopular price hike and an ill-fated effort to split its DVDs-by-mail service into a separate stand-alone business called Qwikster

"There's still an echo and a bruise, and so we're still extremely thoughtful and careful about what we're trying to do because it wouldn't take much to have the issue flare up again or for us to lose trust," Hastings said. "So you might say, we're on probation at this point."

Times staff writer Walter Hamilton contributed to this report.

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