Netflix shares surge as subscriber growth picks up

January 20, 2015, 11:09 PM UTC
Netflix Inc. Website As Company Announces It Will Raise Capital "As Needed" to Fund Original Programs
The Netflix Inc. website is displayed on a computer screen for a photograph in New York, U.S., on Thursday, April 25, 2013. Netflix Inc., the biggest online video-subscription service, said it will raise capital "as needed" to fund original programming while its expansion outside the U.S. absorbs cash. Photographer: Victor J. Blue/Bloomberg via Getty Images
Victor J. Blue/Bloomberg—Getty Images

Netflix closed out 2014 on a high note, posting a 26% gain in fourth-quarter revenue while adding more than four million subscribers in the year’s final quarter. Here are the key points from Tuesday’s Netflix earnings report:

What you need to know: Netflix (NFLX) pulled in $1.48 billion in fourth-quarter revenue, up from $1.18 billion during the same quarter last year, according to a letter to the company’s shareholders. The online video streaming service collected $5.5 billion in revenue for the full year, representing a 26% increase from 2013’s $4.4 billion in sales.

Netflix also saw its fourth-quarter profits soar 72% — to $83.4 million, or $1.38 per share — up from $48.4 million in the fourth quarter of 2013. For the full year, the company collected profits of $266.8 million, or $4.44 per share, which more than doubled the previous year’s tally.

The big number: As usual, the market’s reaction to Netflix’s earnings hinged on the extent to which the company grew its customer base. Netflix didn’t disappoint in the fourth quarter, adding 4.33 million subscribers — accelerating from a 4.07 million increase during the same quarter last year. In total, the company has 57.4 million subscribers globally.

Shares of Netflix spiked in after-hours trading as investors reacted to the strong financial numbers and user growth. After falling by nearly 25% over the past six months, the company’s stock jumped more than 15%, approaching nearly $400 per share.

Netflix shares plunged in October, despite increased profits, when the company fell short of its own projections by adding just over 3 million new subscribers in the third quarter. Earlier in the year, share prices surged when the company topped 50 million subscribers for the first time during the second quarter. Despite worries over stops and starts in Netflix’s user growth rate, the company said on Tuesday it added 13 million new members in 2014 — a personal best. The company expects to add more than 4 million subscribers again in the current quarter, which would bring the global total to 61.4 million users.

International growth has been key to Netflix finding new customers and more than half of its fourth-quarter user growth came overseas. In their letter to shareholders, CEO Reed Hastings and CFO David Wells said that Netflix will launch in Australia and New Zealand later this quarter. The executives also wrote that they want to “complete our global expansion” — which would put Netflix in about 200 countries (it’s currently in 50 countries) — by the end of 2016 while still remaining profitable, “which is earlier than we expected.”

What you might have missed: Hastings offered shareholders his usual rundown of updates on Netflix’s competitors, noting a lack of information about the timing and pricing for HBO Go’s pending standalone service. The letter also included something of an understatement: “Amazon Prime, Hulu, and Yahoo are all increasing their original programming efforts,” a nod to how the companies are following Netflix’s footsteps in developing original shows.

Amazon (AMZN) has been working diligently to rapidly expand its portfolio of original streaming content, including signing iconic writer-director Woody Allen to helm his first-ever television series exclusively for its Prime Instant Video service. Over the weekend, Amazon also said it plans to put out roughly a dozen original films each year — first, in theaters, followed shortly by online releases through Prime.

“In general, Internet TV is going mainstream, which both increases the size of the market and brings new competitors,” the executives wrote. “It couldn’t be a more exciting time in our industry!”

Hastings and Wells spent far more time touting their own original content, including the upcoming full-length feature film sequel to Crouching Tiger, Hidden Dragon as well as a handful of new television series and the return of popular series House of Cards. (The letter even ends with a congratulatory note to Cards star Kevin Spacey for his recent Golden Globe win for acting on the show.)

Meanwhile, somewhat buried in the letter is the announcement that Sony’s controversial comedy The Interview will make a Jan. 24 debut on Netflix, less than a month after its limited release in theaters and through video-on-demand.