Netflix shares soar on solid quarter

Earnings were much better than analysts expected, and the video-rental company gained 2 million net US subscribers.

By Jonathan Berr Jan 24, 2013 11:02AM
Credit: Paul Sakuma/AP
Caption: The exterior of Netflix headquarters is seen in Los Gatos, CalifNetflix (NFLX) has been declared dead more times than Cher's career and, like the legendary entertainer, keeps proving the naysayers wrong.

Shares of the largest video-rental service are skyrocketing Thursday morning as investors cheer better-than-expected quarterly results. The Los Gatos, Calif., company reported net income of $7.9 million, or 8 cents per share, down from $35.2 million, or 64 cents, a year earlier. Revenue rose 8% to $954.2 million. Analysts had expected Netflix to lose 13 cents per share in the quarter on sales of $934.5 million.

Everything that could go right for Netflix did in the quarter. The company added more than 2 million net streaming members in the U.S. as consumers who purchased tablets and other electronic devices signed up for the service. Margins rose by 210 basis points to 18.5% on a sequential basis as Netflix added more customers than it expected and held the line on content costs.  

The stock price rose 40% in Thursday morning trading.

Under CEO Reed Hastings, Netflix has expanded outside the U.S., where it added 6 million new members in the last quarter. That business lost $104 million, less than the company expected. Netflix expects to lose $87 million overseas in the current quarter and less in subsequent quarters.

Netflix also has locked up exclusive distribution deals with major media companies, including Time Warner (TWX) and Walt Disney (DIS), and is creating its own programming. All 13 episodes of "House of Cards," a series created by David Fincher, will be released Feb. 1. A new season of "Arrested Development," whose fervent fans were unable to stop it from being canceled by News Corp's (NWSA) Fox, will debut in the second quarter.

Billionaire Carl Icahn now owns a 10% stake in the company. He paid $58 a share. The stock recently traded hands at $141.63 and the cantankerous activist investor sees better times ahead, telling Bloomberg News that "we still own every share we bought and we believe it’s still got tremendous potential."

Netflix has come a long way from 2011, when its ill-advised plan to split the company in half coupled with an unexpectedly large price increase caused consumers to desert in droves.

--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr

More in moneyNOW

Jan 24, 2013 12:44PM

The stock was hammered last year for no good reason.Glad to see they are

doing fine.

Jan 25, 2013 12:02AM
SECS85, where are the references for those numbers?
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