Netflix in surprise holiday-driven profit, shares jump 35 percent

Wed Jan 23, 2013 10:34pm EST
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By Lisa Richwine

(Reuters) - Netflix Inc surprised Wall Street on Wednesday with a quarterly profit after the video subscription service added nearly 4 million customers in the United States and abroad, sending its shares 35 percent higher in after-hours trading.

The dominant U.S. video rental and streaming company had warned three months ago a letter to investors that it was likely to see a loss for the October to December period, attributing it to startup costs for its expansion into Scandinavia.

But Netflix underestimated the impact of the busy holiday season, when sales of tablets, phones and Internet-connected TVs helped boost subscriptions even as the company faced competition from companies such as Hulu and Inc.

Netflix reported $8 million in net income for the fourth quarter, or 13 cents per share. Revenue rose 8 percent to $945 million from the same quarter a year earlier.

"We just saw tremendous growth over the holidays," Netflix CEO Reed Hastings said in an interview.

The company also forecast it will add 1.7 million members in the first three months of 2013, though it predicts net income will be "relatively flat" due to declining DVD profits and higher global operating costs.

Shares of the company surged 35 percent to $139.80 in after-hours trading. They closed at $103.26, up nearly 6 percent before its earnings announcement.

"They did surprisingly well with subscriber growth and profitability," Lazard Capital Markets analyst Barton Crockett said. "It was a very good quarter."   Continued...

The headquarters of Netflix is shown in Los Gatos, California September 20, 2011. REUTERS/Robert Galbraith