Netflix's 3Q earnings quadruple, stock soars

Wednesday - 10/23/2013, 6:58am EDT

MICHAEL LIEDTKE
AP Technology Writer

SAN JOSE, Calif. (AP) -- Netflix's earnings quadrupled as the Internet video subscription service's line-up of original programming helped attract 1.3 million more U.S. subscribers during its latest quarter.

The July-September financial results announced Monday are the latest evidence of Netflix's increasing popularity as the service's video library expands to include exclusive, high-caliber shows. The strategy is getting rave reviews among investors whose adulation has quadrupled Netflix's market value so far this year.

Netflix's stock soared again Monday, rising $38.01, or nearly 11 percent, to $393 in extended trading after the numbers came out. That sets up the shares to hit an all-time high for the third consecutive trading session on Tuesday.

"They are growing nicely, and they deserve credit for that," said Wedbush Securities analyst Michael Pachter. "But I still don't understand how they can be valued this high."

In a Monday interview, Netflix CEO Reed Hastings acknowledged "there seems to be some euphoria" surrounding the company's stock.

Investors increasingly view Netflix as the leader in a technology upheaval that will redefine the entertainment landscape for decades to come. The Los Gatos, Calif., company is steadily winning new converts to an $8-per-month service that streams TV shows and movies to any device with an Internet connection. Some households are so enamored with Netflix that they are canceling more expensive subscriptions to cable- and satellite-TV services.

Netflix ended September with 31.1 million U.S. subscribers, eclipsing the estimated 29 million subscribers that HBO's 41-year-old pay-TV channel is believed to have in the country.

HBO, which is owned by Time Warner Inc., still has a commanding lead globally with 114 million subscribers around the world.

Netflix Inc., in contrast, has 40.3 million subscribers worldwide after adding 1.44 million customers outside the U.S. in the July-September quarter. The company's streaming service is available in 41 countries, and Netflix plans to enter another yet-to-be identified overseas market next year.

The third quarter covered a three-month stretch that featured the debut of two exclusive series. They were the critically acclaimed "Orange Is The New Black," and "Derek," which also got largely positive reviews. In a Monday letter reviewing the third quarter, Netflix predicted "Orange Is The New Black" -- a drama/comedy set in a women's prison -- will end this year as its most-watched piece of original programming yet, outstripping "House of Cards," a hit released earlier this year that won three Emmy awards.

Hastings told The Associated Press that "Orange Is The New Black" played such a big role in the company's success during the third quarter that he considered staging a special tribute to the series during a Monday discussion of the earnings that was shown on a video feed. "I almost did the earnings show in an orange jumpsuit," Hastings quipped, adding he was overruled by Netflix's head of communications.

Netflix earned $32 million, or 52 cents per share, in the quarter. That compared with income of $7.7 million, or 13 cents per share, at the same time last year.

Analysts surveyed by FactSet had forecast earnings of 48 cents per share.

Revenue rose 22 percent from last year to $1.1 billion to match analyst projections.

Netflix expects to add another 2.5 million to 4.1 million subscribers worldwide in the current quarter ending in December, including an additional 1.6 million to 2.4 million in the U.S.

The lofty gains in the company's stock price are starting to unnerve Hastings, who recalls the shares increasing by nearly five-fold in 2003, only to plunge by 77 percent the following year as investors fretted about stiffening competition and higher expenses for a DVD-by-mail rental service that was once Netflix's financial backbone. Hastings also watched the stock plummet by more than 80 percent from its highs reached in 2011 after Netflix imposed pricing changes that triggered a customer backlash.


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