The stock is up about 12% in initial after-hours trading following the release, which shows stronger than expected sub growth overseas and as-expected results in the U.S. Netflix generated $83.4 million in net income, +72.2% vs the same period in 2013, on revenues of $1.48 billion, +26.3%. The top line is on target with analyst expectations. But a $37.9 million tax benefit lifted earnings to $1.35 a share, way ahead of forecasts for 45 cents. Without that help, the number would have come in at 72 cents — still a solid beat.
On the subscription front, Netflix ended 2014 with 39.1 million U.S. streaming customers, up 1.9 million from Q3. That’s in line with the company’s forecast. CEO Reed Hastings and CFO David Wells say, in a letter to shareholders, that it shows broad consumer acceptance for the $1 price increase, to $8.99 a month, announced in April. “We’ve found our growth in net adds is strongest in the lower income areas of the U.S., which would not be the case if there was material price sensitivity,” they say. The execs add that “there is big growth ahead in the U.S. market for Netflix, even if we may not get there in a straight line of 6 million annual net adds. We’ll continue to improve our content, our marketing and our service, to eventually achieve ‘must have’ status in most households.”
Netflix also had 18.3 million subs overseas, up 2.4 million — beating its forecast for 2.2 million. “Progress has been so strong that we now believe we can complete our global expansion over the next two years, while staying profitable, which is earlier than we expected,” Hastings and Wells say. “We then intend to generate material global profits from 2017 onwards.”
Turning to content, the execs say that Netflix will stream Sony’s unexpectedly controversial comedy The Interview in the U.S. and Canada this Saturday, 30 days after it was in theaters.
And they plan to commission additional original TV series. “Our originals cost us less money, relative to our viewing metrics, than most of our licensed content,” Hastings and Wells say. “We will continue to grow the percentage of our content spending dedicated to originals for the next several years.” While that will add to Netflix’ debt, they will “factor interest cost into our originals budget as we try to make each project more efficient and effective than studio content we’d otherwise be licensing.”