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Original content like "House of Cards," featuring Kevin Spacey, bolstered Netflix sales.

Profits up sixfold as Netflix looks to build on its 'House of Cards'

by Michael C.W. Murphy
Jan 23, 2014


Mike Murphy / Data provided by Bloomberg Finance LP

Netflix Inc.'s earnings rebounded in 2013, but they are still not back on their pre-2011 earnings track.

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Netflix Inc. earnings shot up sixfold for the fourth quarter and all of 2013, reflecting the impressive addition of 4.07 million new subscribers in the past quarter.

Company shares soared more than 16 percent Thursday, following Wednesday’s slim 1.5 percent rise to $333.73.

The movie rental company was buoyed in part by new original content, including original TV shows “House of Cards” and “Orange is the New Black.”

Profits sextupled to $48.4 million, or 79 cents per share, for the period ending Dec. 31, compared with $7.8 million or 13 cents per share in the previous year’s fourth quarter.Similarly,profits for the year sextupled, rising to $112 million, up from $17 million in 2012.

The Los Gatos, Calif., company’s earnings bested Wall Street’s expectations, as analysts surveyed by Zacks Investment Research Inc. had been expecting Netflix to earn 65 cents per share this quarter.

Sales rose 24 percent to $1.17 billion from $945 million in same quarter the previous year. Yearly sales were also up 21 percent to $4.37 billion from $3.60 billion in 2012.

Netflix CEO Reed Hastings announced on a Wednesday call to investors that the recent federal ruling on “net neutrality” did not perturb him. Theoretically, Internet service providers, such as Verizon Communications Inc. and Comcast Corp., could enforce “draconian scenarios,” as Hastings called them, where Netflix is blocked for customers until they pay their providers an additional fee.

“In the long term we still need to figure out what it means and how that works out but I think in the short term it's very likely that there is no change,” Hastings said.

Revenues from Netflix’s original DVD-by-mail rental business have started to slip in recent quarters. DVD revenues of $213 million this past quarter were down nearly 4 percent compared with third quarter revenues of $221 million. Year-on-year sales have also fallen by nearly 20 percent, from $1.14 billion in 2012 to $910 million in 2013.

Netflix’s film- and TV-show-streaming business, now available in 41 countries, fared comparatively better. Revenue for 2013 was up 25 percent to $2.74 billion in the United States over the 2012 figure, and up nearly 150 percent to $712 million internationally.

Netflix’s sharp international growth has come at a cost. While sales have increased dramatically, the company’s international business is still operating at a loss, totaling $274 million in 2012. Marketing costs and purchasing content overseas has proven costly, figures released by the company have shown.

Tuna Amobi, a research analyst with Standard & Poor’s Financial Services LLC, said Netflix will be able to continue its strong growth trend, adding that earnings were “very positive on a number of fronts,” and “came in at the higher end of what we expected.”

While Netflix is still posting a loss internationally, Amobi said “losses have been shrinking the last couple of quarters,” and that “international expansion is being managed very well.”

CEO Hastings said that while shares recently “have been all over the map,” he wants Netflix to “stay focused on doing the best we can on improving the service, growing the membership.”

Netflix also announced in a letter to investors that it was testing new subscription plan tiers, following the introduction of the $11.99 plan in April that allowed four users to watch Netflix from on one account concurrently. A standard subscription plan costs $6.99 per month, but the company said it was looking into cheaper and more expensive variants, based on the number of streams allowed at once.

This comes after Netflix’s decision to split off its DVD rental arm into “Qwikster” in 2011 was quickly reversed by Hastings based on negative consumer response.

Amobi said the company has “learned important lessons from last time,” and any new tier structures will be “nothing nearly as dramatic” as 2011.

Netflix shares closed Thursday at  $388.72, up $54.99.