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Netflix adds 600,000 US subscribers in 4Q as outrage over higher prices wanes; earnings fall
SAN FRANCISCO (AP) ' Netflix has regained most of the U.S. customers it had lost following an unpopular price increase, signaling that the video subscription service is healing from its self-inflected wounds.
Fourth-quarter figures released Wednesday show Netflix Inc. ended December with 24.4 million subscribers in the U.S. That was up 600,000 from 23.8 million at the end of September. That means Netflix regained about three-quarters of the 800,000 it lost last summer after raising its U.S. prices by as much as 60 percent.
The subscriber uptick is a positive sign for Netflix after several months of upheaval that battered its stock.
The fallout contributed to a 14 percent decrease in Netflix's fourth-quarter earnings.
Netflix made $40.7 million, or 73 cents per share, in the final three months of last year. That compares with income of $47.1 million, or 87 cents per share, a year earlier.
Investors had been bracing for a bigger drop-off. The company's performance easily exceeded the average earnings estimate of 54 cents per share among analysts surveyed by FactSet.
Fourth-quarter revenue climbed 47 percent from the previous year to $876 million ' $19 million above analyst projections.
Netflix's stock soared $12.97, or more than 13 percent, to $108.01 in extended trading. During the regular session, it increased $2.37, up 2.6 percent.
The stock still has a long way to go to return to its peak of nearly $305, which was reached in July, about the same time that Netflix announced the price increase that outraged customers.
But the fourth-quarter results should help bolster confidence in Netflix CEO Reed Hastings, who had been skewered in Internet forums and analyst notes for miscalculating how subscribers would react to higher prices.
A contrite Hastings had promised that Netflix would work to lure back customers, and it managed to do so better than he had forecast.
Netflix expects its comeback to gather more momentum in the current quarter.
The company, which is based in Los Gatos, Calif., forecast that it will add 1.7 million U.S. subscribers to a service that streams video over high-speed Internet connections. That would be in line with how many streaming subscribers signed up in last year's first quarter.
Netflix ended 2011 with 21.7 million streaming subscribers in the U.S. and another 1.9 million in Canada and Latin America. This month, Netflix introduced streaming plans in the United Kingdom and Ireland, too.
Most of the streaming gains will be offset by cancellations of DVD-by-mail rental plans, which Netflix is gradually phasing out. Hastings believes discs are becoming increasingly antiquated as technology advances. Netflix predicted its DVD subscriptions will fall from 11.2 million in December to 9.7 million in March. The company lost 2.8 million DVD subscribers in the fourth quarter.
While Netflix sees its emphasis on streaming as a smart long-term strategy, the DVD attrition will hurt the company's financial performance this year. That's because Netflix's recent price increases made delivering discs through the mail more profitable, at least for now. Part of the reason is because Netflix is paying higher fees to obtain the streaming rights to exclusive programming, as well as video already available in other outlets and formats.
Netflix expects those factors to produce an annual loss this year, the first time that has happened in a decade. The company gave the first inkling at how big the setback will be with its first-quarter projections. The company predicted a loss of 16 cents to 49 cents per share.
The average analyst estimate called for a first-quarter loss of 29 cents per share.
Netflix projected first-quarter revenue of $842 million to $877 million. Analysts expect revenue of $849 million.