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Netflix stock shoots up 42% on strong 4Q

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By The Associated Press
Friday, Jan. 25, 2013, 12:01 a.m.
 

SAN FRANCISCO — Netflix's roller-coaster ride on Wall Street surged to new heights on Thursday.

The company's stock climbed $43.60 to close at $146.86 as investors celebrated a fourth-quarter earnings report highlighted by accelerated growth in Netflix's Internet video service.

The 42 percent increase in Netflix's market value marked the stock's biggest single-day gain since Netflix went public more than a decade ago when investors were still shunning Internet businesses in the wake of the dot-com bust.

The last time that Netflix's stock came close to soaring like this occurred in October 2002 when the shares rose nearly 36 percent in a single session. That gain, though, wasn't quite as impressive, because Netflix's stock closed at a split-adjusted $3.55 that day. The meager valuation reflected widespread doubts about a quirky company trying to make money renting DVDs with a monthly subscription that delivered the discs through the mail.

Although it still operates its shrinking DVD-by-mail rental service, Netflix Inc. is now leading the way into a new era in home and mobile entertainment. The company's main subscription now streams movies and TV shows to any device with a high-speed connection.

Netflix's early success enthralled Wall Street until its CEO, Reed Hastings, irked subscribers 18 months ago by announcing the company was ending its practice of allowing them to get DVD rental and streaming services in a single package.

Customers who wanted to keep both options were hit with price increases of as much as 60 percent, triggering a customer backlash that started Netflix stock's jarring plunge from its peak of nearly $305 in July 2011.

Even after Netflix began to slowly regain disaffected subscribers last year, the company continued to lose its luster on Wall Street. The reason: Hastings had decided to forge ahead with costly expansion outside the United States and escalate spending to license more compelling material for Netflix's Internet video library, shriveling the company's profits. Even Hastings acknowledged the strategy might saddle the company with its first annual loss in a decade.

Against this unsettling backdrop, Netflix also has been facing stiffer competition from familiar foe in Hulu.com and new video-streaming services from Amazon.com Inc. and Coinstar Inc.'s Redbox.

So many investors soured on Netflix that its stock sunk to a 52-week low of $52.81 just five months ago. The slide attracted opportunists such as billionaire investor Carl Icahn, who began accumulating a 10 percent stake in Netflix during early September when the stock was still trading below $55 because he thought the shares were grossly undervalued. That is looking like a savvy decision. At one point in Thursday's trading, Netflix stock hit a 52-week high of $149.17.

The market's sentiment about Netflix began to shift in early December when Netflix announced it had struck a licensing deal to begin showing the latest movies from The Walt Disney Co. beginning in 2016. Investors interpreted the agreement with one of the world's biggest entertainment companies as an endorsement of Netflix's staying power.

But it took Netflix's fourth-quarter report, released late Wednesday, to re-establish the company as stock market darling.

 

 
 


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