Netflix reported generally better than expected fourth quarter 2013 earnings, with news that its U.S. streaming members hit 33.42 million and total members topped 44 million. Earnings per share were $0.79 on $1.18 billion in revenue for the quarter.
For all of 2013, Netflix had revenue of $4.37 billion and net income of $112 million, up from $3.61 billion in revenue and $17 million in net income for 2012.
Netflix had been predicting that it would end 2013 with 32.7 million to 33.5 million total U.S. subs and that it would have $0.46 to $0.73 earnings per share in the fourth quarter.
The consensus earnings estimate among analysts were $0.65 earnings per share on revenue of about $1.16 billion for the quarter, according to the Wall Street Journal.
In the fourth quarter, the company added 2.33 million new members in the U.S. and 1.74 million internationally.
Management is predicting that total membership will hit 48 million in the first quarter of 2014.
The news quickly boosted the stock. At afterhours trading, the stock was trading up 19% at 4:13 p.m. ET from the market close of $333 at 3:59 p.m. on Jan. 22.
In a letter to shareholders written by CEO Reed Hastings and CFO David Wells and in Q&A with management, executives also touched on a number of other issues, including their plans to launch the service on cable operators, their European expansion and net neutrality.
On Plans to Be Available on Set-Top Boxes
In the shareholder letter, they noted that its service was already available in Europe with some operators and added that “we anticipate rolling out our first domestic MVPD integrations soon with some of the smaller MVPDs.”
During the earnings call, Hastings said that the service has been successful in the U.K., where it is available on the Virgin cable system using TiVo boxes and that the idea had many advantages for operators. “People will use Netflix anyway,” he said so they would rather their customers stay within their eco-system. “The customer stays on their remote control….You will see [these offerings] start to expand.”
Hastings also downplayed the impact of cable consolidation saying a merger between Charter and Time Warner Cable would only create another Comcast and that it would not have a material impact on their business.
When asked about cable consolidation, he once again reiterated their view that the interests of ISPs and Netflix were closely aligned. “We reinforce each other,” with Netflix providing consumers a good reason for paying for faster speeds, he said.
Over time, he expected those mutual interests would strengthen ties between Netflix and cable.
On net neutrality, Hastings and Well wrote that the decision could allow Internet service providers to force Netflix to pay fees so its subscribers could get a better streaming experience. “Were this draconian scenario to unfold with some ISP, we would vigorously protect and encourage our member to demand the open Internet they are paying their ISP to deliver.”
They argued, however, that “the most likely case” was for ISPs to avoid such feuds and work with Netflix to improve the steaming experience.
During the call, Hastings said that their plans to offer 4K or UltraHD content would not put significant pressure on broadband networks given the relatively limited number of 4K sets. “There is no tidal wave coming in the next 18 months,” he said.
Internationally, they noted that “we plan later this year to embark on a substantial European expansion,” adding “there is a big international opportunity for Netflix.”
They provided, however, no details on which markets they were targeting or performance in specific markets. “We are seeing improvements in every market,” Wells said.
They also were bullish on the future, predicting that net adds in the first quarter of 2014 would increase by about 11% from the prior year to 2.25 million but during the call stuck to their practice of not making full year predictions.
Wells said that people generally use Netflix less during the Olympics, but described the impact of the Sochi games as a “small factor” which was balanced by the launch of a new season of House of Cards in February.
Subscriptions and Ads
Management reiterated its view that they had no plans for putting pre- and post-roll ads into content. They noted that they were testing some different pricing tiers but had not yet made any decisions.