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UPDATE 4-Netflix adds 2.3 mln U.S. subscribers in Q4; shares surge

Lisa Richwine and Ronald Grover
Wednesday, 22 Jan 2014 | 8:01 PM ET

(Adds CEO comments on pricing) LOS ANGELES, Jan 22 (Reuters) - Netflix Inc added more than 2.3 million U.S. customers in the fourth quarter, sending its shares up 17 percent in after-hours trading, and said it was testing different pricing plans for its monthly TV and movie streaming service. The world's largest video streaming company on Wednesday reported net income of $48 million for the quarter, up from $8 million a year ago. Earnings-per-share were 79 cents, Netflix said in a statement, beating the 66 cents average forecast of analysts surveyed by Thomson Reuters I/B/E/S. The strong U.S. subscriber growth, a closely watched barometer of company performance, came in at the top end of Netflix's forecast range. Netflix also signed up 1.74 million new customers in foreign markets, bringing its worldwide total to 44.4 million. Answering critics who question how big Netflix could grow, the company said it expected to add more U.S. subscribers in the first quarter of 2014 than in the year-ago period. "We expect this momentum to continue in Q1 with net additions of 2.25 million to exceed the prior year by about 11 percent," the company said in its quarterly letter to shareholders. Netflix shares, one of the highest-flying stocks of 2013, jumped more than 17 percent in after-hours trading to $391.77, eclipsing the all-time intraday trading high of $389.16 the stock hit in October. In its shareholder letter, Netflix noted it had been testing variations of its $8 monthly charge "at various price points." The company also said it "eventually" hopes to offer three pricing options "to fit everyone's taste." Existing members would receive "generous grandfathering of their existing plans and prices," the letter added. In an interview, Netflix CEO Reed Hastings said it "could take longer than a year" for the company to set new prices. "It just depends on when we feel comfortable we've got something that feels really fair and appropriate to consumers," he said. Netflix suffered from a consumer backlash and stock plunge after it announced an unpopular price increase in July 2011. Hastings discounted a recent U.S. court ruling on "net neutrality" that some analysts said might lead broadband providers to charge the company for quick delivery of its video content, possibly inflating costs for the company. "Our economic interests are pretty aligned," he said. Broadband providers want to sell higher-priced service with faster speeds and need content for it from services like Netflix that work well with faster speeds, Hastings explained. The CEO said he would like to reach a deal with a U.S. cable operator to have Netflix accessed from their set-top boxes. "People will use Netflix anyway and I'd think (cable operators) would rather have them use it on their boxes rather than on Roku or some other box," Hastings said.

Netflix is investing in original programming, such as the "House of Cards," and "Orange is the New Black" series to attract and keep subscribers. If faces competition from online video players like Amazon.com Inc and Hulu, as well as on-demand content from cable operators. But the company reported shrinking losses in international markets. "The international losses are going to subside and therefore show the strength of the overall streaming business," said FBN Securities analyst Shebly Seyrafi, who rates Netflix an "outperform." The company projected it will add 1.6 million customers in foreign markets from January through March. It said it plans a "substantial European expansion" later this year, but did not disclose the markets it is looking at. The company currently operates in Canada, Latin America and seven European countries. Netflix shares ended 2013 as one of the year's biggest gainers, surging 297.6 percent, as investors bet the company would keep dominating the subscription video market and expand its roster of customers who pay $8-a-month for unlimited streaming of movies and TV shows. The company said "a prudent step" would be for it to raise $400 million in long-term debt. It raised $500 million last year.

(Reporting by Lisa Richwine; editing by Andrew Hay, G Crosse)

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