Did Netflix Live Up to Its Potential?

Netflix (NASDAQ:NFLX) investors were expecting good news from the company’s fourth-quarter earnings, and they got it. With 2.05 million new U.S. Internet subscribers added, the company beat expectations and shares jumped up 32 percent to $136.50 in after-hours trading.

Ahead of the report’s release, shares were already on the rise; just before 3 p.m. Eastern Standard Time, the stock was trading up close to 6 percent at $103.56. Since the company reported its third-quarter results at the end of October, the stock has gained more than 70 percent as investors have become more confident that new content deals will enable the streaming video provider to hold off Carl Icahn and the competition from Amazon (NASDAQ:AMZN).

The number of new subscribers that signed up for the service in the past three months was a closely examined figure, as it showed whether the high cost of Netflix’s licensing agreements with The Walt Disney Company (NYSE:DIS) and Time Warner (NYSE:TWX) benefited the company. JPMorgan Chase analyst Doug Anmuth had estimated that the company would add 1.58 million net new U.S. subscribers, bringing the year’s total to 26.7 million. But the company ended 2012 with more than 27.2 million U.S. online customers, Netflix said in its earnings report

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Even though the company had forecast a loss for the quarter, net income increased to $7.9 million, or 13 cents per share, and revenue rose $945.2 million.

Despite the positivity from investors, analysts were expressing a more negative view of the company earlier this week, one that was concerned that its shares may have run out of room to rise. In particular, they worried that the company’s subscriber growth would slow. Analysts polled by research firm FactSet had predicted that Netflix would report a loss of 12 cents per share on a revenue of $935 million, compared to the 73 cents per share earnings the streaming video provider reported in the same quarter last year.

“We still believe Netflix’s earnings growth will be subdued in the foreseeable future, in part due to international expansion costs, [but] we believe investors are looking past this and valuing the company more on its longer-term growth potential,” Janney Capital Markets analyst Tony Wible wrote in a research note seen by MarketWatch. He upgraded the stock to a buy from neutral and raised the price target to $129.

However, Netflix addressed its long-term potential Wednesday with better-than expected earnings and the launch of DIAL, a protocol developed in conjunction with Google’s (NASDAQ:GOOG) YouTube that will aid streaming on mobile and smart-television devices. Gigamon reported that the device is expected to compete with Apple’s (NASDAQ:AAPL) AirPlay, which allows users to stream wirelessly from an iOS device to an HDTV and speakers via Apple TV.

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