Netflix's bet on original programming pays off big

Faith Merino · April 22, 2013 · Short URL:

Shares are up 25% in after-hours trading after Netflix reveals more subs and higher income

Netflix has wowed again with another solid quarter, showing that it’s back in the saddle and coming out swinging (I like my metaphors mixed).

Netflix shares soared nearly 25% in after-hours trading to $217 after the company released its Q1 2013 earnings results, which include $1.024 billion in revenue and $19 million in income, or $0.31 in EPS, excluding items. This is the first time Netflix’s revenue has crossed the $1 billion mark.

Street consensus pegged Netflix’s revenue at $1.016 billion and $0.21 in EPS.

More importantly, Netflix’s gains have leapt a huge chasm when you compare Q1 2013 to the same quarter last year, when the company posted a net loss of $0.08 a share, or -$2 million.

The company has also seen a huge surge in subscribers, adding 2.03 domestic streaming subscribers last quarter, which brings the U.S. streaming total to 29.17 million. That’s on the high end of Netflix’s guidance.

Ordinarily, Netflix says it tends to see fewer subscribers joining in Q2 due to seasonal shifts, but this year, Netflix is adding the highly anticipated cult comedy Arrested Development to its lineup, with all 15 episodes of season four scheduled to debut on May 26. Consequently, the company says it expects higher than average new subscriptions during that time period. Specifically, the company is expecting to have between 29.4 million and 30.05 million members by the end of Q2 2013.

Of course, many are wondering specifically about House of Cards. Clearly, Netflix’s huge (and blind) investment paid off—with the help of a heavy-duty marketing budget.

“The high level of viewer satisfaction implies we are able to target the right audience without the benefit of existing broadcast or cable viewing data and the strong viewing across all our markets gives us faith in our ability to create global content brands in a cost-effective, efficient way,” wrote CEO Reed Hastings and CFO David Wells in a letter to shareholders.

Hastings and Wells also addressed a lingering concern among investors that Netflix’s strategy of releasing entire seasons all at once will make it easy for new subscribers to game the system by simply using their free trial to watch the entire season for free and then cancel their service. But Hastings and Wells say there was very little gaming. Of the millions of new subscribers, only 8,000 canceled their service after their free trial.


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