Netflix Inc. (NFLX), the online and mail- order video-rental service, surged the most in two years after reporting fourth-quarter profit that topped analysts’ estimates and forecasting improving margins in its streaming business.
Netflix signed 610,000 U.S. customers in the period to reach 24.4 million, according to a statement yesterday after the markets closed. Shares of the Los Gatos, California-based company rose 22 percent to $116.01 at 4 p.m. New York time, the biggest gain since Jan. 28, 2010.
Chief Executive Officer Reed Hastings contained a subscriber revolt and is adding customers again after losing 800,000 domestic users in the third quarter. Some had quit Netflix over pricing changes and since-aborted plans for a separate DVD business. The user rebound helped to lift domestic streaming margins to 10.9 percent in the fourth quarter.
“We’re really excited and pleased in our recovery,” Hastings, 51, said in an interview. “We’ve got a long way to go and a huge opportunity ahead.”
Netflix, whose shares slumped 61 percent in 2011, is the best performer on the Standard & Poor’s 500 Index today and for the year so far.
Profit margins in the streaming business this quarter may widen to 11 percent, Netflix said in the statement. The company benefited as more customers signed up for online viewing instead of DVD mail-order plans over the holiday period. The shift saves postage and handling charges.
U.S. online subscribers increased to 21.7 million, while mail-order DVD customers shrank to 11.2 million. The figures for each include people who get both services.
Two Billion Hours
Netflix said on Jan. 4 that users of its online streaming service spent more than 2 billion hours watching films and TV shows in the final three months of 2011, a sign additions to its streaming library were restarting growth.
The company is working to add content, some exclusive, Hastings said. He expects Amazon.com Inc. (AMZN) to offer its video streaming as a standalone service, at prices probably less than Netflix. Hastings said he has no direct knowledge of the plans.
Cat Griffin, a spokeswoman for Seattle-based Amazon, didn’t respond to e-mail and phone requests for comment.
The company forecasts a first-quarter loss of $9 million to $27 million, or 16 cents to 49 cents a share, on sales of $842 million to $877 million. Domestic online users will reach 22.8 million to 23.6 million, while DVD users shrink to as few as 9.4 million.
Analysts project a loss of 29 cents, the average of 26 estimates, on revenue of $845.6 million.
Netflix will need to balance rising content costs against a dwindling profit base of people who pay both for DVDs and streaming, Tony Wible, an analyst with Janney Montgomery Scott LLC in Philadelphia, said in an interview.
“You can add four or five streaming subscribers and that will only compensate for the loss of one hybrid DVD subscriber,” said Wible, who has a “sell” rating on the stock.
International users will range from 2.5 million to 3.1 million, up from 1.86 million at year-end, the company said. Sign-ups in Latin America have been fewer than expected, and the region probably won’t reach profitability for at least two years, Hastings said.
Fourth-quarter income fell 13 percent to $41 million, or 73 cents a share, from $47 million, or 87 cents, a year earlier, the company said.
Analysts projected profit of 54 cents, the average of 29 estimates compiled by Bloomberg. Sales gained 47 percent to $876 million, beating analysts’ forecasts of $857 million.
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