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Netflix, Inc. (NASDAQ: NFLX) has given its highly awaited earnings report.  The online and DVD rental giant reported earnings of $0.73 EPS and $876 million in sales.  Thomson Reuters had estimates of $0.55 EPS and $857.9 million in revenues, so the decline that was expected did not come as harshly as many feared.

Streaming membership grew by 220,000 to 21.67 million from 21.5 million in the third quarter due to better than expected subscriber growth in December with fewer streaming cancellations. 

The company is increasing its first quarter contribution target to 11% after exceeding its 8% target in the fourth quarter.  The company also expects to increase the domestic streaming contribution margin throughout they year and it sees expansion of about 100 basis ponts per quarter.

As far as guidance, Netflix sees paid subscriptions in the 21.5 to 22.3 million subscribers. It is also targeting a loss of -0.16 to -$0.49 EPS on sequentially flat revenues.

Unfortunately, the year over year content spending is increasing by more than double in the first quarter.  It sees content costs rising in each quarter sequentially but not by the same huge bump. The remaining Starz movie catalog will come off of the domestic service at the end of February.

Because of a short squeeze and because this was less-bad it has shares up 11% around $104.85 in the after-hours.  Our argument is less constructive for the bulls because we are still very concerned that Netflix will have a hard time transitioning its story from an earnings growth story to a story of EBITDA growth that is now going to lose money and have a change of content with higher content costs coming.

The 50-day moving average was $78.39 and the 200-day moving average was $177.76 going into the closing bell.  There were more than 9.1 million shares short at the last short interest date.  Stock options trading indicated a move of up to about $10.00 in either direction for after this news.

JON C. OGG