Netflix flies past Q4 targets; ends 2013 with over 44 million members

Netflix flies past Q4 targets; ends 2013 with over 44 million members

Summary: Netflix had plenty of remarks regarding Verizon, but it particularly lamented the wireless carrier's successful challenge of U.S. net neutrality rules.

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With Emmy, Golden Globe, and now Oscar nods under its belt, Netflix had plenty to glow about on its fourth quarter report, issued after the bell on Wednesday.

The digital video streaming company posted a net income of $48 million, or 81 cents per share (statement).

Non-GAAP earnings were 79 cents per share on a revenue of $1.175 billion.

Wall Street was looking for earnings of 66 cents per share on a revenue of $1.17 billion.

Netflix ended 2013 with over 44 million members.

As a result, Netflix shares spiked by as much as 15 percent in after-hours trading.

In a letter to shareholders, CEO Reed Hastings and CFO David Wells summed up what they believe fueled the entertainment company's successful year: "People around the world want what we offer: consumer-in-control Internet television.

For the current quarter, Wall Street expects Netflix to return with earnings of 77 cents per share on a revenue of $1.24 billion.

Netflix offered guidance of $1.063 billion in revenue with earnings of 78 cents per share. The Los Gatos, Calif.-based company also plans to add four million more members worldwide by the end of Q1 2014.

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While Netflix leadership remained confident about the coming year, the company hasn't forgotten some of the embarrassing (and expensive) mistakes it made through sudden announcements and irrational decisions. (See: Qwikster.)

Thus, there were a few notes of caution to analysts and investors:

  • The battle for Internet video is stronger than ever, acknowledging that even though Hulu went through a trio of CEOs last year, paid membership still grew by a whopping 65 percent. Netflix is also keeping its eye on YouTube, Amazon Instant Video, iTunes video and BBC iPlayer.
  • There has been some quiet tinkering with membership rates lately, and that will evolve into a scheme consisting of three pricing options this year. Netflix didn't reveal the structure just yet. While asserting that there is "no rush" to introduce new membership rates (which doesn't mean they aren't in the pipeline), Netflix assured that existing members would get "generous grandfathering of their existing plans and prices." So for as far as investors are concerned, there wouldn't be a sudden revenue increase upon moving to a new pricing model.
  • The second quarter routinely sees a smaller amount of new subscribers -- even when Netflix launched the highly-anticipated fourth season of Arrested Development during Q2 2013.
  • Netflix had plenty of remarks regarding Verizon, but it particularly lamented the wireless carrier's successful challenge of U.S. net neutrality rules, painting a picture of a "draconian scenario" in which domestic Internet service providers could legally impede the video streams. Nevertheless, Netflix appeared optimistic that ISPs would avoid a "consumer-unfriendly path of discrimination" on the basis that consumers pay for higher bandwidth packages "mostly for one reason: high-quality streaming video."

Chart via Netflix Investor Relations

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  • Maintaining a decent price structure is key

    They almost lost me, both of my accounts, with that not-so-long-ago pricing fiasco that they had to walk back. The latest changes in pricing are palatable, and so long as they keep the costs where they are now I'll stay a subscriber.

    But just as soon as Netflix or the big media companies start to gouge me, I'll bail on them.

    I gave up a nearly $100 per month HD cable bill over four years ago. I have not had cable nor have I received any local content over the airwaves since then. I am a Netflix streaming and disc subscriber for my movies. For news, well, the Internet has ample news outlets available.

    My parents have cable, and they spend countless hours on reality shows, cooking shows, sports, news, and so on. I don't miss that one bit. Most of all, I don't miss commercials. In fact, it was paying about $100 per month to have ads shoved in my face that made me drop cable.

    As long as I don't feel that I am being gouged, and as long as I am not forced to watch commercials when I pay a monthly subscription fee, I will remain loyal to Netflix - though I do not consider myself a "member". I am a customer who pays for the services.
    Raid60