A month ago, Netflix (Nasdaq: NFLX) CEO Reed Hastings sparred with all-star investor Whitney Tilson over the wisdom of selling Netflix short. Hastings rounded off the exchange by saying: "Shorting a market leading firm as it is driving a huge new market is a very gutsy call. On balance, I would rather have my co-philanthropists on the long side of this particular bet."

The proof is always in the custard, and last night's fourth-quarter report was rich and creamy. Netflix delivered earnings of $0.87 per share on $596 million in revenue, while 3.1 million net new subscribers pushed the customer list above the 20 million waterline.

The stock is up 14% on the news, breaking all-time highs in intraday trading and rewarding investors with a spiffy-pop if they invested as recently as December 2008. Naturally, the short-sellers are hurting. In this light, it's hard to call Hastings "defensive" for engaging in the Tilson tussle.

This simple chart clearly reveals the core of the report:

Netflixq

Here, millions of new Netflix subscribers are doing a respectable impersonation of a blue hockey stick. Behold the fruits of an increasing reliance on digital video streams and fewer red DVD mailers. Hastings predicts an S-curve shape to his company's growth, in which case we just hit the rapid-growth part of that trend.

The 28-day delay that damaged Coinstar's (Nasdaq: CSTR) Redbox results so badly clearly didn't slow down Netflix at all. Rising content costs are also a reality, but not enough to hobble profits in any meaningful way. Likewise, potential competitors like the Hulu Plus service and the Apple (Nasdaq: AAPL) TV box couldn't hamstring Netflix this time. In fact, the Apple TV probably helped more than it hurt, because Netflix streaming is featured front-and-center on that device.

Finally, Hastings notes that Netflix video may indeed be a major consumer of Internet bandwidth to our homes, but that it doesn't create much of a load on the backbone infrastructure. Since the video streams are handled by the distributed networks of content delivery servers managed by Akamai Systems (Nasdaq: AKAM), Level 3 Networks (Nasdaq: LVLT), and Limelight Networks (Nasdaq: LLNW), very little traffic passes beyond their regional traffic centers. Netflix characterized any attempts by service providers to wring extra fees out of consumers for this traffic as bald-faced profit grabs.

I'm not surprised by any of this, except perhaps the vigor of the market reaction. Netflix is proving its business model to plenty of doubters, one quarterly report at a time.

I wonder if Whitney Tilson got any of his shorted shares out of harm's way. He did have fair warning, after all.

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