Netflix Soars on Subscriber Growth

January 28, 2011 Updated: October 1, 2015

NETFLIX GROWING: Red Netflix envelopes sit in a bin of mail at the U.S. Post Office sort center in San Francisco, Calif. on March 30, 2010. Netflix surpassed it's own expectations to end 2010 with just over 20 million subscribers. (Justin Sullivan/Getty Images)
NETFLIX GROWING: Red Netflix envelopes sit in a bin of mail at the U.S. Post Office sort center in San Francisco, Calif. on March 30, 2010. Netflix surpassed it's own expectations to end 2010 with just over 20 million subscribers. (Justin Sullivan/Getty Images)
NEW YORK—Shares of online movie rental company Netflix Inc. rose as much as 15 percent Thursday as the company announced that it has surpassed 20 million subscribers for the first time in its history.

Netflix reported a knockout fiscal fourth quarter and saw its number of paid subscribers surpass 20 million in the United States and Canada, the Los Gatos, Calif.-based company said Thursday.

The company, which delivers DVD and Blu-ray rentals by mail and streams videos online, saw its shares rise on Thursday, surpassing a previous high of $205.90 set on Nov. 30, 2010.

Netflix (Nasdaq: NFLX) signed on 7.7 million subscribers in 2010, and the company indicated that more than a third of the new subscribers signed up for its $7.99 streaming-only plan, which it created late last year. Analysts had questioned the impact of the streaming-only plan, but Netflix’s results indicate that the doubt was unfounded.

To put the company’s subscriber increase into perspective, Netflix gained more than twice the number of new customers in 2010 than in 2009, and the 3.08 million new customers it added in the fourth quarter of 2010 brought the total number of subscribers at the end of 2010 to just over 20 million, beating its own estimate of 19 million total subscribers in 2010 that the company made in October.

The company has tried to increase its online-only video database, and Reed Hastings, Netflix CEO, said that its library of streaming-only movies and television shows will steadily increase as it adds subscribers, which would help the company obtain new leverage in negotiating with film studios.

Netflix expects subscribers to grow to between 21.9 and 22.8 million by the end of the first quarter 2011. It currently faces competition from kiosk rental stations such as Redbox, online rental company Amazon.com, and video rental chain Blockbuster, which is currently undergoing Chapter 11 bankruptcy.

“We now expect NFLX to end 2011 with about 31.3 million subscribers (versus 27.3 million previously), as both the U.S. and Canada subscriber expectations for 1Q11 are higher than anticipated, with Canada much higher,” wrote Credit Suisse Equity Research in a research note after the company’s earnings release this week.

Michael Olson of Piper Jaffray maintained his “Overweight” rating on Netflix’s stock and raised his price target from $217 to $240.

Better Than Expected Canadian Expansion

Netflix last September expanded into Canada, and the company said that it expects to gain between 750,000 and 900,000 subscribers by the end of first quarter, which was more than what Credit Suisse analysts expected for all of 2011.

The company said that its expansion into Canada would post a loss in the early going, but the Canadian business is expected to reach profitability in the third quarter.