Netflix shares soar as Q4 results top estimates
Stock climbs nearly 17% in extended trading as subscriber exodus appears to ebb
Shares of Netflix (NASDAQ: NFLX) soared nearly 17% in extended trading Wednesday after the streaming video company announced a 13% decline in fourth-quarter profit, but still beat analysts' estimates.
After closing at 95.04 -- itself a 2.6% gain over Tuesday's ending price -- Netflix shares climbed as high as 111.00 after hours, or 16.8% above Wednesday's close.
Netflix reported Q4 net income of $41 million, or 73 cents a share, 16% below last year's earnings of $47 million, or 87 cents a share.
Revenue for the fourth quarter was $876 million, or 47% above revenue of $596 million in the year-ago quarter.
Analysts had forecast an average of 54 cents a share in net income on revenue of $857 million. Nothing like low expectations.
Netflix also warned that it expects heavy spending internationally -- particularly in the U.K. -- to lead to a loss of $9 million to $27 million in the current quarter.
Clearly Wall Street -- at least based on after-hours trading -- thinks the worst of the subscriber backlash unleashed by last summer's rate increase is over. This backlash caused Netflix shares to plunge from more than $300 in July to less than one-third of that today.
But Netflix said Wednesday that streaming subscriptions in the U.S. grew to 21.67 million members from 21.45 in the third quarter. (Yes, DVD subscriptions declined to 11.17 million from 13.93 million in Q3, but Netflix already has said it intends to phase out that part of its business to go all in on streaming.)
Further, Netflix said domestic streaming net membership for this quarter "are tracking close to our net additions in Q1 2010 of 1.7 million." The company projects total domestic streaming subscriptions of 22.8 million to 23.6 million in the current quarter.
As indicated by its loss warning, Netflix is aggressively trying to expand in international markets. With international revenue in Q4 at less than 4% of total sales, there's room for growth, but the company can't keep losing money in international markets.
(By the way, Netflix generated $15.59 in revenue from every international streaming subscriber in the fourth quarter, versus $21.97 for domestic subscribers.)
In any event, the free-fall appears to be over, barring another strategic blunder by top management. While existing shareholders have paid dearly for these mistakes since last July, the stock's collapse could mean an opportunity for investors who a year ago were complaining that Netflix was overpriced.