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Netflix cheers market with talk of profit after global rollout

Wednesday, January 21, 2015 - 07:50
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Netflix Inc.'s US$9.5 billion (S$12.7 billion) drive to dominate video streaming worldwide is paying off.

[LOS ANGELES] Netflix Inc.'s US$9.5 billion (S$12.7 billion) drive to dominate video streaming worldwide is paying off.

Investors sent the shares up as much as 15 per cent after the Los Gatos, California-based company said it will profitably reach all 200 of the countries that have broadband Internet service within two years.

"We then intend to generate material global profits from 2017 onwards," chief executive officer Reed Hastings and his finance chief, David Wells, said today on the company's website.

The outlook reassured investors who have expressed concerns about the company's narrow margins, widening international losses and a budget for films and TV shows that's swollen to US$9.5 billion from US$7.3 billion in the past year.

Netflix rose as high as US$401.97 in extended trading after reporting fourth-quarter results that included better than predicted subscriber growth. The stock gained 3.4 per cent to US$348.80 at the close in New York.

International subscriber growth outstripped gains in the US for the third straight quarter, as Mr Hastings raced to plant his flag before other would-be competitors. Subscribers outside the US expanded by a record 2.43 million in the fourth quarter, reaching 18.3 million.

Netflix expects to add another 2.25 million international subscribers this quarter.

The company didn't say which countries are up next after Australia and New Zealand, where the streaming service debuts in March. Unexplored territories with fast Internet service include China, Japan, Spain and South Korea.

Fourth-quarter revenue rose 26 per cent to US$1.48 billion, compared with analysts' predictions of US$1.49 billion. Net income almost doubled to US$83.4 million, or US$1.35 cents a share, aided by a tax benefit, the Los Gatos, California-based company said on its website.

Domestically, Netflix added 1.9 million new customers to reach 39.1 million, compared with the 1.85 million predicted. That brought the worldwide total to 57.4 million.

This quarter, the company forecasts 1.8 million new US customers. Profit will be US$37 million, or 60 cents a share.

As Netflix expands into new markets, it will be offering more original programming than ever. The company plans 320 hours of original series, new and returning, films, documentaries and stand-up comedy specials this year. That's triple what Netflix offered in 2014, the statement said.

Those programmes including holdovers such as House Of Cards and new shows like Tina Fey's The Unbreakable Kimmy Schmidt. Borrowing Planned To support those efforts, Netflix plans to borrow at least US$1 billion. The company's has commited to spending US$9.5 billion on programming.

Both Mr Wells and Mr Hastings said the average subscription price would continue to rise, and that prices don't have to be the same in all new markets.

"They are acknowledging reality and the right thing to do, which is lock in the money while it's cheap and sprint as quickly as they can to build scale internationally," Barton Crockett, an analyst with FBR Capital Markets, said in an interview. "It's generally a good time to borrow."

BLOOMBERG