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Netflix posts Q4 profit of $48.4M, with 44M subscribers

Profit rose more than it forecast, and its earnings outlook to kick off 2014 was rosy too. The service finally addressed Net neutrality, telling members not to worry, and said it will launch in more European countries.

Netflix CEO Reed Hastings spoke about the company's partnership with LG's Smart TVs at CES earlier this month.
Sarah Tew/CNET
Netflix's profit surged again in the fourth quarter to $48.4 million, as it added more than 4 million subscribers -- at the high end of what the company predicted.

It ended the quarter with more than 44 million subscribers, and expected that number to reach 48 million by the end of March.

Shares in the company rose 17 percent to $390.46 after hours on Wednesday as its outlook for profit in the current quarter beat Wall Street views. The stock rocketed higher last year, tripling in value, but so far in 2014 it had dropped about 9 percent through the close.

The company finally addressed the implications of a recent Net neutrality court decision that some have feared could ultimately result in higher Netflix costs -- and thus higher Netflix membership prices. Earlier this month, a court essentially threw out regulations that limited what Internet service providers could do to control traffic on their networks, leading to worries that network operators may charge fees to "traffic hogs" -- of which Netflix is the biggest.

In a letter to shareholders, Chief Executive Reed Hastings and Chief Financial Officer David Wells acknowledged that, in theory, ISPs can legally impede video streams from Netflix and could be motivated to make Netflix pay fees to stop the buffering.

"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," they said.

"The most likely case, however, is that ISPs will avoid this consumer-unfriendly path of discrimination. ISPs are generally aware of the broad public support for Net neutrality and don't want to galvanize government action," they wrote.

On the pricing front, Netflix also said that it is testing single-stream and triple-stream options, as well as standard-definition and high-definition variations, at various prices. "Eventually, we hope to be able to offer new members a selection of three simple options to fit everyone's taste," the executives wrote.

In its results, Netflix added 2.3 million new domestic streaming customers in the fourth quarter, for a total of 33.4 million. In October, it had predicted 32.7 million to 33.5 million.

Its international subscriber base expanded by 1.7 million members to 10.93 million, slightly more than the 10.1 million to 10.9 million expected. Expansion overseas topped Netflix's list last year in its investment priorities, as it planned to essentially put all its domestic profits into growth abroad. It launched in the Netherlands last year and already blanketed Latin America. It also operates in the UK, Ireland, and the Nordic countries.

Wednesday, Netflix said it plans "later this year to embark on a substantial European expansion." It didn't specify which countries.

Looking ahead, it expects more subscriber growth in the current period. It's projected to add 2.25 million domestic members and 1.6 million international customers for the first quarter. Hastings has said he envisions the company reaching 60 million to 90 million US customers eventually.

Netflix also predicted 78 cents per share in earnings in the current quarter. On average, Wall Street analysts who follow Netflix expected 77 cents.

Overall, Netflix reported a profit of $48.4 million, or 79 cents a share, compared with $7.9 million, or 13 cents a share, a year earlier. Revenue increased 24 percent to $1.18 billion.

The per-share profit result was much higher than Wall Street analysts' expectations, while revenue was slightly above them.

Netflix will hold a live video discussion moderated by two analysts, who will ask Hastings and other Netflix executives questions submitted through e-mail and Twitter. It will start streaming on Netflix's investor relations' Web site at 2 p.m. PT today.

Updated at 1:30 p.m. PT: with further details from quarterly report.