Netflix surprised Wall Street on Wednesday by reporting an unexpected profit for the fourth quarter as newly acquired tablets and smart TVs prompted new customers to try its streaming video service.
The company, which also has a DVD-by-mail service unit, said it eked out a profit of $8 million, or 13 cents a share, during the October-December period, vs. profit of $35 million, or 64 cents, a year earlier. Analysts had forecast a loss.
Its revenue of $945 million was 7.8% higher than a year ago.
"They did surprisingly well with subscriber growth and profitability," says Barton Crockett, an analyst at Lazard Capital Markets. "They had more subscribers than most of us thought they would."
Netflix added 2 million new streaming customers in the U.S., improving from 1.16 million added in the third quarter. The service draws 27 million customers in the U.S. For all of 2012, Netflix added nearly 10 million users worldwide, bringing the total number of global streaming customers to more than 33 million.
"Our holiday season was particularly strong, driven by consumers buying new electronic devices, including tablets and smart TVs," Netflix CEO Reed Hastings wrote in a letter to shareholders.
In after-hours trading, the stock rose 33.5% to $137.82.
Streaming remains Netflix's focus, as it anticipates profit from U.S. streaming to be larger than from DVDs for the first time. DVD memberships fell to 8.2 million in the fourth quarter, vs. 8.6 million in the third. As streaming lets customers view content anytime, Netflix is betting on original content to differentiate its library, even as competitors are undertaking a similar strategy. "Over time as a group, we are likely to compete more like Showtime and HBO do today," Hastings wrote.
The company's budget for original content is "expected to consume more cash in the first quarter and then decrease in terms of cash use in second quarter forward," he wrote.
Crockett says Netflix doesn't need to spend more on content in the U.S. "Netflix spends enough money to have service people like," he says. But creating compelling shows people will talk about will be "a real big test."
Starting next month, it will show six exclusive series, including: House of Cards, a political drama starring Kevin Spacey; Arrested Development, a revival of the Emmy-winning series; Derek, from Ricky Gervais; and a second season of Lilyhammer, with Steve Van Zandt as an ex-mobster.
(c) Copyright 2013 USA TODAY, a division of Gannett Co. Inc.
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