Up until May, neither company exhibited the kind of momentum you look for in hot stocks. However, in the last few weeks, both NFLX stock and TRIP stock have come alive and now sit comfortably ahead of the S&P 500 through the first five months of 2014.
Which one of these hot stocks should you own? I’ll look at the various reasons one might consider NFLX stock over TRIP stock and vice-versa.
Hot Stocks — Why Netflix?
Since hitting its two-year low of $53.87 on August 2, 2012, NFLX stock is up an astounding 676% compared to 46% for the SPDR S&P 500 (SPY). At no time has it been hotter than this past May when it had just four down days out of 21. That’s the kind of performance you expect from hot stocks, but it has led many market experts to question the sustainability of this latest run-up in Netflix.
Considered by many to be overbought at the moment, NFLX stock might still be worth buying now, rather than hoping for another price retreat like we saw in April.
New Shows: Orange is the New Black’s second season comes out June 6. In early May, Netflix announced that it had given the green light for a third season, making it one of the video streaming services’ most popular shows. Anyone who has been considering a new Netflix subscription might be enticed if the early reviews for this season are as positive as they were in the first season.
Price Increase: Current subscribers (I’m one of them) have been given a two-year reprieve from the $1 increase in the monthly subscription rate that took effect in May. RBC Capital Markets analyst Mark Mahaney believes very few current Netflix subscribers are going to cancel their memberships as a result of the price increase. And why would you if it doesn’t take effect for two years? By then, there’s no telling how many original programs Netflix will have created that are as interesting as Orange is the New Black and House of Cards. Strong businesses have pricing power, and NFLX is no exception.
International Expansion: Netflix currently has 12.7 million subscribers outside the U.S. in more than 40 countries including Canada and the U.K. Its international revenue accounts for 25% of its total streaming revenue, and that number’s expected to surpass U.S. revenue sometime in the not-too-distant future. With its service launching in six European countries later in 2014, NFLX expects to achieve profitability in its international unit by the end of the year. While content costs are rising, a profitable international business certainly makes its business model that much more attractive.
If NFLX stock wants to remain in “hot stocks” territory it’s going to have to continue to execute well on points one and three in 2014 and beyond. If it can do that, there’s a good chance that point 2 will take care of itself lifting Netflix stock beyond $500.
As for the competition…