January 23, 2013

Netflix shares surge on surprise profit

Netflix shocked Wall Street with a surprise profit of 13 cents per share on Wednesday, as analysts were expecting a loss of the same amount for the fourth quarter.

Shares soared 34% in after-hours trading following the earnings announcement.

Netflix booked $945 million in revenue in the quarter. That also topped analysts' estimates.

Investors were also pleasantly surprised by the number of new U.S. streaming subscribers. Netflix signed up 2.05 million in the fourth quarter, above the 1.3 million to two million the company had predicted last quarter. That brings total U.S. streaming subscriber additions to 5.48 million for 2012.

It's been a stunning turnaround for the company in recent months after Netflix reset expectations for how quickly it could grow. Earlier last year, Netflix predicted it would add seven million U.S. streaming subscribers in 2012. But fewer users signed up than expected in the third quarter.

Netflix CEO Reed Hastings said during the company's third-quarter earnings conference call in October that the goal of seven million was "a forecasting error," and said a new target of five million new U.S. streaming customers was more realistic.

Netflix now has 27.2 million U.S. streaming subscribers, and another 6.1 million in global markets. Still, Netflix's DVD-by-mail subscriptions continued to decline, falling 380,000 in the U.S. to about 8.2 million.

Some subscribers have complained that the company's catalog is stale, and Netflix has been working to add new content. The company signed a deal with Disney in December, but new film releases from the studio won't be available for another three years.

This month, Netflix inked two new deals with CNNMoney parent company Time Warner for previous seasons of shows from Turner Broadcasting and Warner Bros., including "The West Wing" and Cartoon Network content.

But Netflix's rivals have also been making deals. Amazon has signed on Epix and A&E, and expanded its deal with NBCUniversal. Verizon and Coinstar launched their long-planned Redbox streaming service, priced at the same $8 per month as Netflix, last month.

One of Netflix's chief competitors is in trouble, however.

Hulu, the streaming video service owned by Disney, News Corp. and Comcast, is losing its CEO Jason Kilar. He hasn't announced his next move, but he said in January that he will step down sometime in the first quarter.

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