Netflix bounces back

After a dreadful decline that began last summer when Netflix alienated investors and subscribers alike, the video service finally had some good news to report yesterday.

After seeing subscriber defections in recent months, Netflix said it added 610,000 subscribers in the fourth quarter, bringing its total for the year to 24.4 million.

While Netflix’s profit in the quarter fell 13.6 percent versus the year-ago period, it did beat analyst expectations, prompting its shares to jump by 16 percent in after-hours trading. It was the company’s first quarterly report since an ill-advised price raise and a botched DVD spinoff skewered its stock by some 70 percent in the fall.

Revenues jumped 47 percent for the quarter, but the costs to add new content and subscribers also increased, dragging down profits.

“We don’t feel great about the profit stream this quarter,” CEO Reed Hastings said in a conference call, though he expressed confidence in the company’s content. International expansion also weighed on profits and will continue to do so. The company said it doesn’t expect to post profits in 2012.

DVD subscribers fell 20 percent, or 2.8 million, and the company projected it would lose another 1.5 million DVD members in the upcoming quarter. Its total streaming subscribers last quarter increased by about 3 percent. Executives said it would stop promoting its DVD business to focus exclusively on its streaming service.

The company avoided commenting on reports that Amazon may brand its video-streaming unit as a standalone service and a direct competitor to Netflix. Asked about Amazon, Hastings responded, “Today they’ve taken a more measured approach. Going forward, we’ll see.”

Netflix has seen a whiplash of investor activity. Share prices swelled to more than $300 last July, but plunged under $65 in the fall after the company underestimated consumer rage over a 60 percent price hike. In the last few weeks of 2011, share prices rebounded 30 percent. That’s when the company reversed its plans and frantically worked to put out fires.

Netflix will lose its remaining titles from the Starz movie service, including 15 Disney movies, at the end of February. The company brushed off the news, saying, “We have plenty of substitutes.” Analysts found the statement suspect. “I think that they are being disingenuous about the extent to which content quality will suffer once Starz goes away,” said Michael Pachter, an analyst at Wedbush Securities.