This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

[video] Netflix Soars on Q4 Beat (Update 2)

Updated from 4:25 p.m. to include information from the shareholder letter in the sixth through eighth paragraphs.

NEW YORK (TheStreet) -- Netflix (NFLX) shares rose 16.2% to $388.00 after the online entertainment company posted better than expected fourth-quarter earnings.

The Los Gatos Calif.-based firm earned 79 cents a share on $1.175 billion in revenue, as it surpassed 33 million domestic streaming subscribers, ending the quarter with 33.42 million streaming subscribers, of whom 31.71 million were paying members. Streaming margins hit 23% in the fourth quarter.

Analysts surveyed by Thomson Reuters were expecting Netflix to earn 66 cents a share on $1.17 billion in revenue for the fourth quarter.

In the letter to shareholders, CEO Reed Hastings noted that the improvement came from service improvements, effective marketing and Internet connected devices, and expects these trends to continue. "We expect this momentum to continue in Q1 with net additions of 2.25 million to exceed the prior year by about 11%," Hastings wrote in the letter. "Running equal to, or slightly above, prior year net additions is a great outcome because it implies that at 33 million domestic members we're still in the middle section of the S curve of consumer adoption, with years of member growth ahead of us."

With regards to margins, Netflix said it expects to reach 30% contribution margin in 2015, but noted that once that level is reached it would get harder to keep growing at 400 basis points per year.

Aside from new seasons of House of Cards, Orange is the New Black and other Netflix originals, there are more new shows coming. 2015 will see the first season of Sense8, from the Wachowski brothers, and the exclusive new series developed in conjunction with Marvel. Netflix will also be the exclusive provider of Better Call Saul, the spin-off of Breaking Bad in the U.K. Ireland, Latin America, the Nordics and the Netherlands. It will appear in North America on Netflix following its release on AMC Networks (AMCX).

Netflix said it expects to have over 35 million streaming subscribers (35.67 million) by the end of the first quarter of 2014, with 34.26 million of them paying subscribers.

Touching on net neutrality, Hastings said that Netflix would "vigorously protest and encourage our members to demand the open Internet" if Internet Service Providers (ISPs) started to degrade the experience. The letter noted that ISPs are likely to "avoid this consumer-unfriendly path of discrimination."

Though the company is adding streaming subscribers at a record pace, content library costs and international expansion are eating up most of the company's free cash flow. The company generated only $5 million in free cash flow during the quarter. As such, Netflix said it will raise an additional $400 million in long-term debt on "terms similar to our $500 million raise last year." The company ended the quarter with $1.2 billion in cash and equivalents.

Netflix also talked about updates to pricing plans, after introducing an $11.99 streaming option last April. Eventually, Netflix would like to offer three simple options to appeal to everyone, and if there are pricing changes for new members, existing members would be grandfathered in at the old rates.

The company continues to make great strides internationally, adding 1.74 million subscribers from around the world during the quarter, taking it to 10.93 million users. In the first quarter, Netflix said it expects international users to jump almost 60% year-over-year to 1.6 million users. "Our success this year in international net additions and shrinking contribution losses confirms our belief that there is a big international opportunity for Netflix."

For the first quarter, Netflix said it expects to earn 78 cents a share, above the above the consensus estimate of 76 cents a share.

--Written by Chris Ciaccia in New York

>Contact by Email.

Stock quotes in this article: NFLX 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,355.30 +92.74 0.57%
S&P 500 1,852.84 +9.86 0.54%
NASDAQ 4,063.1330 +28.9720 0.72%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs