Netflix adds 2 million U.S. subscribers, posts profit

NEW YORK Netflix's (NFLX) move to compete against traditional cable-TV channels with original programming is pulling in more subscribers to its Internet video service and winning back investors who doubted the company's ability to develop distinctive entertainment.

The skepticism dissipated Monday with the release of Netflix's financial results for the opening three months of the year.

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The first-quarter numbers showed Netflix added 2 million U.S. subscribers from January through March - hitting the top end of the target set by the company's management. The growth left Netflix with 29.2 million U.S. subscribers to an $8-per-month service that streams movie and TV shows to Internet-connected devices.

Those first-quarter gains, coupled with signs that Netflix's profit margins are widening, delighted investors. The company's stock soared $42.54, or 24 percent, to $216.91 after the results came out. If the stock rallies similarly on Tuesday, it will mark the first time Netflix's stock has topped $200 in 19 months.

Netflix's stock had plummeted to as low as $52.81 in a stunning downfall that began in July 2011 when the company outraged its U.S. subscribers with pricing adjustments. The change resulted in a price increase of as much as 60 percent for customers who wanted Internet video and a DVD-by-mail option that ensured they would receive the latest theatrical releases. Investors also fretted as Netflix's losses on an international expansion piled up and the company's bills to license video mounted.

Now, it looks like Netflix CEO Reed Hastings - an object of scorn when the company's stock was plunging - might have known what he was doing all along. In the process, he appears to have regained the luster that made him a Wall Street darling while Netflix's stock was soaring toward its all-time high of nearly $305.

"We've seen improvements in our business over the last year in content, in our product, in optimizing the way we process payments, and in the general recovery of our brand," said Netflix in a statement Monday.

"We have a huge opportunity to continue to grow as Internet TV develops globally and are working everyday to make sure our service is as good as it can possibly be," said the company.

Netflix eked out a profit of $2.7 million, or 5 cents per share, in the first quarter. That contrasted with a loss of $4.6 million, or 8 cents per share, last year.

If not for the costs for refinancing some of Netflix's debt, the company said it would have earned 31 cents per share. That figure topped the average analyst estimate of 18 cents per share.

Revenue rose 18 percent from last year to $1.02 billion - about $7 million above analyst forecasts

Hastings envisions Netflix becoming as popular as any channel on cable or broadcast TV. To realize that goal, he decided Netflix should become more like Time Warner Inc.'s HBO channel and develop more series that can't be seen anywhere else.

That was a big change for Netflix, which had primarily licensed content that have previously been shown in movie theaters and on traditional television networks.

Netflix took its first major leap in its new direction in early February with the debut of "House of Cards," a critically acclaimed series made exclusively for Netflix. The series, starring Academy Award-winning actor Kevin Spacey, reportedly cost Netflix $100 million, amplifying fears the company was spending more than it could afford.

In another breakthrough, Netflix released all 13 episodes of "House of Cards" at once, raising the risk that many people would just accept the company's standard offer of a free month of service and then quit. But Netflix said fewer than 8,000 people resorted to what it calls "free-trial gaming" during the first quarter.

"The global viewing and high level of engagement with the show increased our confidence in our ability to pick shows Netflix members will embrace and to pick partners skilled at delivering a great series," Hastings wrote in the company's quarterly letter to shareholders.

Netflix is becoming so popular that too many people using the same account are trying to watch video at the same time. The company currently allows no more than two devices to watch at the same time. Netflix said Monday that is introducing a $12-per-month plan that will allow up to four devices using the same account to watch video.

Another original series, "Hemlock Grove," came out on Netflix last Friday. Although the horror series didn't get great reviews from TV critics, Netflix said Monday that the viewership of "Hemlock Grove" during its first weekend surpassed the numbers posted by "House of Cards."

Another Netflix exclusive, the resurrection of "Arrested Development," is scheduled for next month.

Neither "Hemlock Grove" nor "Arrested Development" is expected to be compelling enough to overcome a traditional lull that occurs in Netflix's subscriber growth during the spring, when warmer weather and longer daylight hours decrease people's interest in staying indoors to watch TV. The company expects to add 230,000 to 880,000 U.S. subscribers during the current three months ending in June.

The company, which is based in Los Gatos, Calif., expects its second-quarter earnings to at least double from the 11 cents per share posted at the same time last year. Management envisions earnings for the current quarter ranging from 23 cents to 48 cents per share.