Netflix Inc. (NASDAQ: NFLX) reported fiscal fourth quarter and full-year 2014 results after markets closed Tuesday. For the quarter, the video distribution company posted diluted earnings per share (EPS) of $1.35 on revenues of $1.48 billion. In the same period a year ago, the company reported EPS of $0.79 on revenues of $1.18 billion. Fourth-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.45 and $1.48 billion in revenues.

Quarterly net income includes a $0.63 per share tax benefit. Excluding the one-time benefit, Netflix posted EPS of $0.72.

For the full year Netflix reported revenues of $5.5 billion and EPS of $4.32 compared with 2013 EPS of $1.85 and revenues of $4.37 billion. Analysts had estimated EPS of $3.42 on revenues of $5.5 billion.

Netflix added 2.43 million international subscribers in the fourth quarter compared with the company’s own estimate at the end of the third quarter for net additions of 2.15 million. The company added 1.9 million subscribers in the U.S. during the fourth quarter, in line with the company’s earlier estimate of 1.85 million. The company said it had 57.39 million subscribers at the end of December.

For the year net additions in the U.S. were up nearly 6 million and international subscribers rose by more than 7 million. Netflix added 2.3 million net subscribers in the fourth quarter a year ago.

In a direct attempt to manage investor expectations the company’s CEO and CFO explained that their research indicated that the price increase the company implemented in May had little to do with the third-quarter decline in subscriber additions. They went on to say:

We think … the reduction in [year-over-year] net additions is a natural progression in our large US market as we grow. We have built in flexibility to our business model in terms of how quickly we grow content and marketing spend, so we intend to keep US contribution margins growing even with lower membership growth. This year we plan to increase US contribution margins from 30% in Q1 to about 32% in Q1 2016 to about 34% in Q1 2017, etc. … We’ll continue to improve our content, our marketing and our service, to eventually achieve “must have” status in most households.

In other words, the low-hanging fruit is picked in the U.S. and the company is going to build a taller ladder to get at the next tier of potential subscribers. With about 115 million households in the U.S. there’s still plenty of room to grow beyond the 33 million current U.S. subscribers.

Subscribers to the company’s domestic DVD-by-mail service declined from 5.99 million in the third quarter to 5.77 million. Since December 2013 DVD customer subscriptions have shrunk by nearly 1.2 million.

For the first quarter of 2015, Netflix forecast EPS in a range of $0.60 on revenues of $1.4 billion. The consensus estimate for the quarter has called for EPS of $0.77 on revenue of $1.58 billion. The company expects overall subscriber numbers to grow to 61.4 million by the end of the first quarter. The breakdown calls for 1.8 million net additions in the U.S. and 2.25 net additions internationally.

Today’s report is nearly a 180-degree turn from the end of the third quarter when a subscriber count miss chewed 20% off the share price. Investors are much happier tonight.

Netflix shares are up about 12% in after-hours trading at $388.99 in a 52-week range of $299.50 to $489.29. Shares closed today at $348.80. Thomson Reuters had a consensus analyst price target of around $413 before today’s report.

ALSO READ: America’s Best Run Companies

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.