Netflix Beats the Street, Shares Soar After-Hours

CNBC.com

Netflix

It’s been a roller coaster ride for Netflix and now the stock is speeding north after hours on better-than expected fourth quarter results.

(Click here for the latest after-hours quote.)

It appears it’s starting to move past the debacle that decimated the stock after it split its DVD and streaming businesses and raised prices in September.

Netflix reported earnings per share of 73 cents, flying past expectations of 55 cents while revenue grew more than expected to $876 million, up from $596 million a year ago.

As the company warned, it’s on track for “modest quarterly losses, as well as losses for the calendar year,” as it invests in international growth. The company projects a loss of between $9 million and $27 million in Q1. The decline in DVD profits of about $50 million plus an equally large increase in international losses will outweigh growth in the U.S. streaming business. And free cash flow will take a hit as it pays more up-front for original content than it does for licensing.

But perhaps most importantly, subscriber numbers continue to climb: the company finished the quarter with 24.4 million total unique U.S. subscribers, up from 23.8 million three months earlier. And internationally the company continues to grow its streaming business—finishing the quarter with 1.86 million, a new addition of 380,000.

There’s no question Netflix’s DVD business continues to struggle—2.76 million DVD subscribers ditched the service over the course of the quarter because of the “price changes,” as Netflix described the price hike. The bad news is that the company expects DVD members to continue to drop the service and opt for streaming-only, projecting another 1.5 million will leave in Q1. The good news is that “the weekly rate of DVD cancellations has subsided from peak levels in September,” and that sequential decline is expected to moderate in future quarters.

Netflix pointed to growing competition in the domestic streaming market- saying its “biggest long term threat is TV Everywhere, and in particular HBO Go .” The question is what happens once every network and cable channel offers an Internet app to give subscribers access to content on demand. And while the company boasted that they have more content than both Hulu and Amazon, which it identified as its other rivals, it warned that Amazon will offer its streaming product “at a price less than ours.”

Investors will surely have plenty of questions about Netflix’s content costs and projections, but Netflix doesn’t host a traditional earnings call. Instead of hosting a presentation and then fielding questions from analysts, Netflix asks analysts to email in questions, and then reads and addresses those questions in a call at 6 pm Eastern. We can expect analysts to focus on competition, international growth, original content, the future of the DVD business, and subscriber churn.

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