Netflix Q4 Earnings Beat The Street, But Next Quarter May Be A Different Story

Saying 2011 was a rocky road for Netflix would be an understatement, as it split its DVD and streaming offerings into two businesses, then reneged. They also hiked their prices, only to experience a veritable customer revolt, and CEO Reed Hastings was forced to publicly say that they’d made a huge mistake.

Today, Netflix has released its fourth quarter earnings from 2011, and it looks like there’s at least a sliver of good news, as the company beat Wall Street’s forecasts of $0.54 a share and $857 million in revenues, rising instead to $0.73 per share and $876 million in revenues (a 47 percent increase from the year prior).

In its letter to shareholders this afternoon, Netflix said that it saw a rise in streaming members in the U.S., up 220,000 to 21.67 million in the fourth quarter. In October and November, growth was slow, but December was kinder to Netflix, as the company said that it “returned to positive net streaming additions,” boosted by strong seasonal growth additions and exceeded its own forecasts. More importantly, based on its exodus last year, Netflix saw fewer streaming cancellations, as well as a lower rate of migration to DVD-only plans.

All in all, domestic streaming reached nearly 22 million subscriptions, adding a total of 610K, while domestic DVD subscriptions came in at 11.7 million, with international subscriptions at 1.86 million. In relation to the latter, Netflix has warned that it will lose money throughout 2012 as it ramps up its international content, and as DVD subscriptions continue to underperform: “We expect modest quarterly losses, as well as losses for the calendar year,” the company said in its shareholder letter. Due to international expansion, particularly in its launch in the UK, Netflix expects a consolidated loss of between $9 and $27 million in the first quarter.

The company sustained a sharp decline in DVD members in the fourth quarter and thus expects DVD revenues in the first quarter to decline at approximately the same rate, while streaming revenues will increase, with an expected flat sequential revenue in the first quarter.

In total, Netflix ended 2011 with 24.4 million subscribers in the U.S., which was up 25 percent from 2010, and rose from 23.79 total domestic subscriptions in the third quarter. All things considered, this is a good sign for Netflix, especially as it attempts to recover from the whopping 800K subscribers it lost in the third quarter. Although 2012 will continue to be shaky, it seems that the company has at least regained some trust, and is seeing stronger growth.

As to how shareholders are taking the news? Today, Netflix’s stock rose by $3 per share, up 2.37 percent, and in after hours trading, the stock is up 13 percent to $108 a share — another good sign, as shareholders seem at least somewhat contented by the company’s outlook going forward.

The earnings report comes on the heels of some management changes for Netflix, as the company announced last week that its Leslie Kilgore, its CMO for the last 12 years, would be joining the Netflix board as a nonexecutive director. Jessie Becker was appointed interim CMO, and Jonathan Friedland would be promoted to Chief Communications Officer.

Another thing that Netflix may have to contend with in the near future: Amazon. The New York Post published an article today saying that Jeff Bezos and company are seriously considering a move to expand the company’s streaming service, potentially even carving it out as a standalone, subscription-based operation.

In January of last year, Amazon acquired LoveFilm, a U.K. version of Netflix, and some expected at the time that Amazon would eventually rebrand the service, taking advantage of its strong European presence in the video streaming and rental markets. There’s no doubt that Amazon is positioning itself as a major competitor to Netflix, and with its growing clout as a media company, backed by the addition of its new Kindles, Netflix has reason to be nervous.

It’s strong push into international markets could be very important to Netflix in the long term, even if that means lower forecasts and declining profits over the next few quarters. Today, however, shareholders are a bit happier, and Netflix may just be proving that its regaining its footing.

Updating in realtime. We’ll also be listening in on Netflix’s earnings call at 3pm PT/6pm ET.

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