Netflix Inc. (NFLX), the world’s largest subscription streaming service, will report after markets close today that its U.S. Web subscribers rose to 33.1 million in the fourth quarter, according to a survey of analysts.
Netflix probably signed 2.05 million net online subscribers in the quarter, which is the average of 10 estimates compiled by Bloomberg. The Los Gatos, California-based company projected in October it would add 1.6 million to 2.4 million domestic online users, and said it could close 2014 with as many as 33.5 million, including free trials.
Investors will look at today’s first-quarter forecast from Chief Executive Officer Reed Hastings to see if he can sustain that user growth. With original shows such as “Orange Is the New Black,” exclusive films and a library of newer and vintage programs, Netflix last year passed HBO in U.S. subscribers, based on SNL Kagan’s 28.7 million estimate for the Time Warner Inc. (TWX) network.
“The company continues to significantly disrupt the linear TV market through strong subscriber growth, content differentiation, and a compelling consumer proposition,” Doug Anmuth, an analyst with JPMorgan Chase & Co. who recommends the stock, wrote in a Jan. 16 research note.
Fourth-quarter net income at Netflix probably rose fivefold to $40.5 million, or 66 cents a share, the average of 31 estimates compiled by Bloomberg, from $7.9 million, or 13 cents, a year earlier. Sales are projected at $1.17 billion, up 24 percent from a year earlier.
Almost a month into the first quarter, Netflix will probably forecast 1.7 million new domestic subscribers for the first three months of 2014, the average estimate of six analysts. The company, which faces competition for viewers this quarter from the Winter Olympics on NBC, signed 2.03 million U.S. subscribers in the same period a year ago.
For the first quarter, Netflix profit will probably be $46.9 million, or 75 cents a share, based on 19 estimates, with revenue of $1.24 billion. The company posted net income of $2.69 million, or 5 cents a share, a year earlier, including an expense for debt retirement. Sales totaled $1.02 billion.
Netflix rose 0.2 percent to $329.26 at 11 a.m. in New York. The stock almost quadrupled last year and was the top performer in the Standard & Poor’s 500 stock index.
If Netflix can gain 6 million subscribers or more worldwide annually, revenue should be sufficient to fund growth and make it hard for competitors to catch up, said Tony Wible, an analyst at Janney Montgomery Scott LLC in Philadelphia who recommends buying the stock.
The company is in talks with cable companies to get the service embedded on their set-top boxes. If that happens, subscriber growth may accelerate.
CEO Hastings has capitalized on rising broadband penetration, reaching about a third of U.S. Web-connected homes by offering past seasons of popular TV series, movies and original shows such as “House of Cards,” the political thriller with Kevin Spacey that returns Feb. 14.
Investors will be listening for his comments on this month’s decision by a U.S. Appeals Court overturning the Federal Communications Commission’s so-called net neutrality rules.
“Everyone is waiting to hear what Reed has to say,” said Michael Pachter, an analyst with Wedbush Securities in Los Angeles who recommends selling the stock.
The ruling, if upheld, could increase costs for Netflix if cable TV and telephone providers demand the company pay fees for faster Web service to customers’ homes.
Revenue per user could decline by $1 per month, or as much as $400 million a year, if Netflix has to pay for unrestricted delivery of its content, according to Pachter.
Broadband providers probably won’t charge Netflix or consumers until a user streams 112 hours of high-definition content a month, Wible said. The average is about 30 hours.
Hastings has resisted calls to raise his price by investors who cite the company’s $6.4 billion obligation to pay for exclusive content over the next five years.
Instead, Netflix has begun testing different prices for its service.
The current $7.99 a month price is attracting customers at a steady clip, and could help Netflix reach almost 55 million domestic subscribers by 2018, according to Wible. He and other analysts expect Netflix to raise prices by then.
Hastings also will probably address the company’s international expansion. Domestic streaming and DVD-by-mail services are paying for continued losses outside the U.S.
In the third quarter, Netflix’s international operation lost $74 million on revenue of $183 million. Netflix finished the third quarter with a total of 40.3 million streaming customers, of which 38 million were paid.
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