Tuesday, October 22, 2013

Netflix Hits Subscriber Milestone as Shares Soar

The company said it added 1.3 million streaming subscribers in the United States in the third quarter of the year, reaching the high end of its own projections and surpassing the 30 million mark domestically for the first time. In international markets, where it is less established, Netfix added more than 1.4 million subscribers for a total of 9.2 million.

The results impressed investors; the company’s stock, which had already almost tripled this year, rose about 10 percent in after-hours trading to $390, beating its previous high. But the Netflix chief executive, Reed Hastings, and chief financial officer, David Wells, sought to tamper enthusiasm about the stock price. In their quarterly letter to shareholders, they said “some of the euphoria today feels like 2003,” when Netflix’s stock price quintupled in one year before sliding back to single-digit levels.

“We do our best to ignore the volatility in our stock,” the executives wrote as they redirected attention toward their membership totals, which they said have grown “every year fairly steadily.”

Netflix had projected that it would end the third quarter with somewhere between 30.5 million and 31.3 million streaming subscribers in the United States; on Monday, it said the total was 31.1 million, and released a projection for the fourth quarter of 32.7 million to 33.5 million. The company also said it expected to cross the 10 million mark internationally sometime during the fourth quarter.

Investors and analysts have paid close attention to the subscriber projections because Netflix has previously predicted that it could someday have 60 million to 90 million members in the United States, and even more overseas. On Monday, Mr. Hastings, who frequently singles out HBO as Netflix’s chief competitor, hinted at a specific number it’s aiming for.

“We have done well but we have a long way to go to match HBO’s 114 million global member count or their well-deserved Emmy Award leadership,” he wrote in the shareholders letter.

Mr. Hastings also shed a little light on the relative success of Netflix’s original television shows, like “House of Cards,” the first such show for the service. “House of Cards” has apparently been overtaken by a bigger hit, “Orange is the New Black,” which had its debut at the beginning of the third quarter.

Without sharing any specific ratings figures — Netflix has steadfastly refused to do so — Mr. Hastings wrote that “Orange” will “end the year as our most-watched original series ever.”

In a vote of confidence for the series, which stars Taylor Schilling as an inmate in a women’s prison, Netflix ordered a second season of “Orange” before the first season even started. Given the popularity of the first season, “we believe the audience for Season 2 will grow substantially,” Mr. Hastings wrote.

The shareholder’s letter barely mentioned the other original series that Netflix introduced in the third quarter, a half-hour series by Ricky Gervais called “Derek.”

As important as original series are — they give Netflix something special to promote and, as Mr. Hastings wrote on Monday, they “get most of the headlines” — the typical Netflix subscriber still spends a lot more time streaming repeats of TV shows that were originally shown elsewhere. While the company said it expected to double the amount it spends on original programming in 2014, the unspecified total amount will still represent less than 10 percent of all the money it spends on content.

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