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Netflix stuns investors with Q4 profit, adds 2.05 million subscribers

Analysts predicted Netflix would see a 12 cents per share loss, but the company turned a 13 cents per share profit for its fourth quarter.


Netflix, the online movie-rental service, reported a fourth-quarter net income of $8 million, or 13 cents a share, on revenue of $945 million, the company said after the close of trading today. Revenue was up from $876 million in the same period last year, but earnings were down from $35 million in Q4 2011. Analysts surveyed by FactSet predicted a loss of about 12 cents per share on $935 million in revenue for the quarter.

Netflix financial statement Netflix 8-K

Netflix said that for the quarter ending December 31, the number of U.S. streaming subscribers increased by 2.05 million. The company now has a total of 27.15 million domestic streaming customers and 6.12 million international subscribers.

In early after-hours trading, Netflix shares were up over 30 percent, after closing up 5.57 percent ahead of earnings at $103.26.

The number of international subscribers grew by 30 percent from the previous quarter, Netflix said, but contributed a loss of $105 million. The company cited costs associated with launching in Nordic countries for the higher international loss than the prior quarter, which was $92 million. "With a Q1 guidance midpoint of $87 million in international losses, we expect a sequential improvement of $18 million, with more modest sequential improvements expected in subsequent quarters," the company stated.

Netflix has been attracting subscribers with the promise of new content and has invested in its own programming. The company signed multiyear agreements with Turner Broadcasting and Warner Bros. Television Group to add the complete past seasons from the Cartoon Network, Warner Bros. Animation, and Adult Swim, as well as episodes from the current TNT series "Dallas." The new shows will debut on Netflix starting March 30.

In addition, Netflix signed an agreement with Warner Bros. to make "Revolution," "Fringe," "The West Wing," and "666 Park Avenue" available for streaming. Netflix inked a major deal with Walt Disney to stream films from Walt Disney Animation Studios, Pixar Animation, Marvel, and Disneynature. However, that programming won't be available until 2016.

Netflix is also set to premiere its first original TV series, "House of Cards," on February 1, with 13 episodes available in all markets, and launch new episodes of "Arrested Development" in May.

Netflix has long wanted users to link their video accounts with Facebook and other social networks, but it's been prevented from letting them do so by the Video Privacy Protection Act, which bars companies from disclosing information such as video rentals. An amendment to that law passed at the end of 2012 that allows digital, as opposed to written, permission from users and thus makes it easier for Netflix to move forward with its social plans.

Netflix maintains that its many competitors lack the popular titles that customers want to view. In its 8-K filing, the company wrote:

We looked at the top 200 titles on Netflix: our 100 most popular movies and our 100 most popular TV shows in Q4. Of these 200, 113 are not on Amazon Prime, Hulu Plus, or Redbox Instant. Of the 87 that are available on at least one of these services, Hulu Plus offers 27 of the 200; Amazon Prime 73 of the 200; and Redbox Instant 12 of the 200, with significant overlap in TV between Hulu Plus and Amazon Prime, and in movies between Amazon Prime and Redbox Instant. In other words, when it comes to the most popular content with members on Netflix, none of these services are good substitutes to Netflix.

It may be that Amazon's customers could make similar claims for popular titles on their service that are not available on Netflix.

During the analyst call, Netflix CEO Reed Hastings said he expected the adoption of Internet-connected devices and multi-screen experiences to fuel growth for the company. In regards to the value of the Disney deal set for 2016, Hastings said, "Once the Disney content flows in, it is fully exclusive to Netflix, which allows us to have differentiation in the long term."