Netflix Inc. shares jumped 24% in after-hours trading Monday as the online video service posted a first-quarter profit, having added more than two million U.S. streaming video subscribers.
The company also reported a strong reception for "House of Cards," its high-profile original series.
Netflix now is nearly on par with Time Warner Inc.'s HBO premium cable channel in terms of paying customers. HBO had 28.7 million paid U.S. subscribers at the end of the year, according to SNL Kagan, while Netflix's paid streaming subscribers at the end of March totaled 27.91 million. The company ended the quarter with 29.2 million U.S. streaming video subscribers, including those with free promotions, beating Wall Street's expectations.
Profit for the quarter totaled $2.7 million, or five cents a share, compared with a loss of $4.6 million, or eight cents a share, in the year-earlier period. Revenue grew 18% to $1.02 billion.
Some analysts had said there was a risk that users could sign up for Netflix's free monthly trial, watch "House of Cards," and then cancel their services. But the company said fewer than 8,000 people engaged in that "free-trial gaming" out of the millions of free trials in the quarter.
In after-hours trading on the Nasdaq, Netflix shares rose $42.73 to $217.10, its highest point since September 2011. The stock move suggests that investors are regaining confidence in the company after a pricing change in 2011 triggered a selloff that sent the stock from a high of nearly $300 to a low of $53.80 last September. The stock is up 88% year-to-date.
The challenge for Netflix, which sells $7.99 monthly subscriptions, is to sustain enough new customers to offset its increased spending on streaming content. Netflix had negative free cash flow of $42 million in the quarter, a slight improvement over the fourth quarter, largely because of high content acquisition costs. Netflix has more than $5.7 billion in long-term content commitments.
Helping fuel content costs is the company's plunge into original programming, highlighted by "House of Cards," a Washington political drama that debuted in February. Netflix will spend about $100 million on the show, including a second, yet-to-be-aired season. The company didn't disclose viewership statistics for the show, but in its quarterly letter to shareholders said the launch "provided a halo effect on our entire service."
On a conference call Monday evening, Netflix Chief Executive Reed Hastings left unclear how much credit "House of Cards" deserves for the brisk subscriber additions in the quarter. "What we've seen with House of Cards is a nice impact but a gentle impact," Mr. Hastings said.
Netflix hopes such original content will lure in subscribers and further differentiate it from competitors, including Amazon Inc. and Hulu, as well as premium TV channels like HBO and Showtime. Another original series, supernatural thriller "Hemlock Grove," launched Friday. And a new season of cult comedy hit "Arrested Development" will be released next month.
Still, Amazon, in particular, has become more aggressive at licensing shows from Hollywood studios and in developing its own original series. Mr. Hastings told analysts that aggressive bidding for programming rights by Amazon and Hulu in the past year has driven up the cost of content licensing deals.
In its letter to shareholders, Netflix said it is getting more selective in the shows it licenses from studios. It will not renew a licensing deal that expires at the end of May for programming from Viacom Inc.'s networks including Nickelodeon, MTV and BET. Netflix said the companies are in discussions about a new deal that could involve particular shows. A Viacom spokesman said, "We are in discussion with several parties, including Netflix, on distribution of our content."
The international-streaming unit has been a drag on profitability, with $389 million in losses last year and another $77 million in the first quarter. That is an improvement over the $103 million loss in the year-earlier period. The company added one million international streaming users in the quarter, bringing its total to 7.1 million.
The DVD-by-mail business continued to shrink, losing 240,000 subscribers in the quarter to 7.98 million.
Operating profit margin in the U.S. streaming business widened to 20.6% from 19.2%.
Netflix raised $500 million in February through a bond offering. About $225 million of the proceeds went to refinance existing debt, with the rest going toward corporate purposes.
Netflix also unveiled a new $11.99 per month plan in the U.S. that will allow users to simultaneously stream four videos. The company currently limits playing two video streams simultaneously. Netflix expects fewer than 1% of its subscribers to take it.