Netflix is finding a fortune in being a Hollywood producer.
The video-delivery company said Monday that its originally produced shows helped draw more than 2 million new U.S. streaming customers in the first quarter even as its DVD-by-mail service continues to decline.
Netflix shares surged about 25% in after-hours trading Monday as investors focused on its streaming business growth and the company's guidance that its base of U.S. streaming customers could exceed 30 million in the second quarter.
The Los Gatos, Calif.-based company also posted net income of $3 million in the first quarter vs. a loss of $5 million a year ago. Excluding some debt-related costs, it earned 31 cents a share, beating analysts' estimate of 20 cents.
In a letter to shareholders, Netflix CEO Reed Hastings said the company will add a new pricing tier -- $11.99 a month -- that allows up to four family members to stream movies simultaneously. It currently limits the service to two people using the same account. Netflix expects fewer than 1% of members to take the new plan.
Netflix's first-quarter revenue totaled $1.02 billion, up 18% from a year ago. In after-hours trading, the company's stock shot up more than $42 from Monday's close, to $217.15.
"Everything they did was fine," says Michael Pachter, an analyst at Wedbush Securities. "I question the market reaction. It's kind of ridiculous how much it's valuing this. There was nothing surprising."
The sharp increase in the number of U.S. streaming customers clearly pleased investors, who see it as a reflection of Netflix's appeal and ability to adapt to the fast-changing video-delivery technology. To differentiate its service from competitors, Netflix is producing more original shows, and Hastings told shareholders Monday that the effort is paying off.
Most notably, Netflix premiered in February all 13 episodes of House of Cards, a political drama starring Kevin Spacey. On May 26, it'll air 15 episodes of the continuation of Arrested Development. "The global viewing and high level of engagement with the show increased our confidence in our ability to pick shows Netflix members will embrace," Hastings wrote. "By dealing directly with the producers of TV shows, we are better positioned to pick just those shows that we believe will work best."
While analysts wonder if subscribers will join to watch new shows, then cancel, Hastings said only 8,000 people did that after a free trial.
The number of U.S. streaming customers added in the quarter -- 2.03 million -- fell slightly from 2.05 million in the fourth quarter of 2012 but still beat analysts' estimate of 1.8 million, according to Bloomberg.
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