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Ahead of the Bell: Netflix stock soars

NEW YORK (AP) -- Shares of Netflix soared in premarket trading Thursday after the online video rental company delivered a surprise profit in the fourth quarter when analysts had expected a loss.

Netflix Inc. reported late Wednesday it added 2 million subscribers during the quarter, which pushed it to a profit for the final three months of 2012. CEO Reed Hastings credited the gains to people's interest in watching a wide range of entertainment on tablets and Internet-connected TVs that they got as holiday gifts.

Wedbush Securities analyst Michael Pachter said "impressive subscriber growth and cost control" drove the stronger-than-expected quarter. But he cautioned that long-term challenges remain, and kept an "Underperform" rating on the stock.

"We expect higher costs to result in erosion of the quality and quantity of Netflix's content library over time, resulting in higher churn (subscriber turnover), and we expect domestic subscriber growth to slow or stall completely in the next few years," he said in a note to investors. "We expect slowing growth to be evident later in 2013, with fewer net domestic subscribers added year-over-year."

Shares of the Los Gatos, Calif.-based company added $40.49, or 39.2 percent, to $143.75 in premarket trading, indicating that the stock would easily hit a 52-week high once the market opens.

Despite the recent gains, Netflix's stock remains well below its peak price of nearly $305 reached in July 2011.