Netflix Soars Most Since April 2013 on Profit Talk, Rollout

Netflix Inc.’s $9.5 billion drive to dominate video streaming worldwide is paying off.

Investors sent the shares surging 17 percent to $409.28 at the close in New York, after Netflix said yesterday it will profitably reach all 200 of the countries that have broadband Internet service within two years. That’s the biggest jump since April 2013, when better-than-expected subscriber growth boosted the stock. Netflix has gained 20 percent this year.

“We then intend to generate material global profits from 2017 onwards,” Chief Executive Officer Reed Hastings and his finance chief, David Wells, said on the company’s website.

The outlook reassured investors who have expressed concerns about the company’s narrow margins, widening international losses and a budget for films and TV shows that’s swollen to $9.5 billion from $7.3 billion in the past year.

International subscriber growth outstripped gains in the U.S. for the third straight quarter, as Hastings raced to plant his flag before other would-be competitors. Users outside the U.S. expanded by a record 2.43 million in the fourth quarter, reaching 18.3 million.

Netflix expects to add another 2.25 million international customers this quarter. It already has more than 5 million users in Latin America, the most detailed number Netflix has given regarding international subscribers.

The company didn’t say which countries are up next after Australia and New Zealand, where the streaming service debuts in March. Unexplored territories with fast Internet service include China, Japan, Spain and South Korea.

Fourth Quarter

“Every country but North Korea,” Hastings said in an interview. “Under U.S. law, we’re still blocked there.”

Licensing issues may inhibit Netflix’s expansion into China, he said. The company is exploring its options, and any investment will be modest.

Fourth-quarter revenue rose 26 percent to $1.48 billion, compared with analysts’ predictions of $1.49 billion. Net income almost doubled to $83.4 million, or $1.35 a share, aided by a tax benefit, Netflix said on its website.

Domestically, the company added 1.9 million new customers to reach 39.1 million, compared with the 1.85 million predicted. That brought the worldwide total to 57.4 million.

This quarter, Netflix forecasts 1.8 million new U.S. customers. Profit will be $37 million, or 60 cents a share.

New Markets

As Netflix expands into new markets, it will be offering more original programming than ever. The company plans 320 hours of original series, new and returning, films, documentaries and stand-up comedy specials this year. That’s triple what was offered in 2014, the statement said.

Those programs including holdovers such as “House of Cards” and new shows like Tina Fey’s “The Unbreakable Kimmy Schmidt.”

Netflix’s deal for the Batman-inspired TV show “Gotham” tested the cost of global rights to premium content, Hastings said. The company acquired worldwide rights to the show in its second window, after it leaves the air, and paid $1.75 million an episode in the U.S., according to Deadline.com.

The company faces competition for new television shows and creative talent from broadcast networks and cable channels, as well as newer players like Amazon.com Inc., Hulu and Yahoo Inc. Amazon just won two Golden Globes for its show “Transparent,” and signed a deal with filmmaker Woody Allen.

HBO vs. Showtime

Hastings compared his company’s growing rivalry with Amazon to the competition between Time Warner Inc.’s HBO and CBS Corp.’s Showtime. Netflix is HBO, in his estimation.

“When Showtime has a hot hand it increases their subscribers, but it doesn’t decrease HBO’s,” Hastings said.

Both Wells and Hastings said the average subscription price would continue to rise, and that prices don’t have to be the same in all new markets.

To support its programming efforts, Netflix plans to borrow at least $1 billion. The company’s has committed to spending $9.5 billion on programming.

“They are acknowledging reality and the right thing to do, which is lock in the money while it’s cheap and sprint as quickly as they can to build scale internationally,” Barton Crockett, an analyst with FBR Capital Markets, said in an interview. “It’s generally a good time to borrow.”

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