Online video subscriptions, now the company’s focus, grew faster than anticipated, with 220,000 new accounts in Q4, for a total streaming subs list of 21.6 million.
“We saw fewer streaming cancellations, as well as lower migration to DVD-only plans, resulting in the outperformance for streaming members,” Netflix said in its quarterly letter to shareholders.
Overall, the video company added 610,000 U.S. subscribers for a year-end total of 24.4 million.
Perhaps pumped up by the solid performance, chief financial officer David Wells said of Netflix’s notorious move to increase subscriber prices by 60 percent: “(We’d) make the same decision” today. Investors who saw their stock fall from $305 to about $110 might take issue.
Netflix stock soared 14 percent in after-hours trading, following release of the earnings, which were down 13 percent compared with last year.
On revenues of about $876 million, Netflix earned $41 million, or 73 cents a share in Q4. Analysts were expecting 54 cents a share or so, and company stock even took a hit earlier in the week on fears the earnings report would disappoint. It didn’t.
About 10 percent of company profits came from streaming video, Netflix said. The current quarter is showing similar strength, the company said, accounting in part for the stock price run-up once earnings were announced after the bell (on Jan. 25). The contribution for Q1 should be 11 percent, the company said.
The DVD unit’s profits were $194 million, or 52.4 percent of the profit pie. “While DVD members declined sharply over the last two quarters, the weekly rate of DVD cancellations has subsided from peak levels in September,” Netflix said.
Still, CEO Reed Hastings said, “We expect DVD subscribers to decline steadily for every quarter forever.”
Subscribers left the red-envelope company in droves in early fall, many angered by the extraordinary price increase for those who both rented DVDs and viewed online video. A botched attempt to start a separate DVD rental operation confused and alienated subscribers as well.
The price increases of last summer pushed many subscribers to choose one plan or another. “Hybrid members (DVD and streaming) continued to predominantly choose a streaming-only plan over a higher priced hybrid plan,” the earnings letter said. The company deliberately moved its focus to streaming, where it sees the future of home video. Netflix no longer plans to promote its DVD rental service.
As for content on the streaming Watch Instantly service, “our current domestic offering is dramatically improved from a year ago,” Netflix maintained.
Netflix downplayed next month’s defection of Starz as mostly a loss of 15 Disney titles such as “Toy Story 3.”
The gap in family offerings will be filled by children’s fare from Paramount (“Rango,” “Hugo”) and, next year, DreamWorks Animation, the investors letter said.
As for the “over the top” rivals in streaming video, Netflix again backhanded Amazon and Hulu Plus, whose “content is a fraction of our content, and we believe their respective total viewing hours are each less than 10% of ours.”
Netflix pointed out that Hulu Plus charges $7.99 for its content, yet consumers still have to watch commercials: “Even if Hulu could afford our level of content spend, at the same price consumers would prefer commercial-free Netflix over commercial-interrupted Hulu Plus.”
Netflix again buttered up HBO, calling its Go service a potential major competitor. It also praised Showtime’s TV Everywhere platform while calling it another long-term threat. Hastings has called HBO programming “the Holy Grail” for Netflix’s buyers.
International enterprises were less of a drag on earnings than expected, with a loss of $60 million tempered by “lower content expenses.” The company expects to lose as much as $27 million in the first quarter due to costs of the international expansion in Latin America, and the United Kingdom and Ireland.