Back in October, Netflix, Inc. (NFLX) suffered some post-earnings damage as its per-share earnings results missed expectations and U.S. subscriber growth disappointed. In the wake of the stock’s subsequent selloff, I reminded readers that there was still a lot to like about NFLX.
Now, in the wake of the company’s latest earnings announcement, I’m getting a feeling of deja vu.
The deja vu isn’t because Netflix posted another earnings miss earlier this week — far from it. During the fourth quarter, Netflix earned 10 cents per share — five times better than what Wall Street was expecting.
At first, that was enough to have investors cheering. In after-hours trading Tuesday, Netflix stock surged, approaching $120 after closing just under $108.
By Wednesday morning, though, investors had soured. Netflix opened stripped of its after-hours gains, then proceeded to slide right through its 200-day moving average to touch the $100 mark.
So investors are being quite moody. But if this were a breakup, the markets would be feeding Netflix the popular line: “It’s not you, it’s me.” And that’s where the deja vu comes in.
Right now, the market’s broader weakness and volatility are pummelling NFLX stock. But as I reminded readers a few months ago, the two main drivers of the stock’s long-term strength are still standing.
Netflix remains a momentum play that, in many ways, is the definition of a game changer. Thanks to the streaming mega-trend and the company’s global growth, this stock’s bull case still applies, even if it’s harder to see right now.
Sure, there were points of weakness in the company’s most recent numbers. Despite the monster earnings beat, Netflix actually missed analyst expectations with regard to revenue, posting $1.82 billion vs. the consensus $1.83 billion. And while the earnings beat was nice, it still represented a substantial drop from the 19 cents per share posted a year ago.
But remember — an even bigger drop was long being built into the stock’s value. Plus, earnings are on tap to grow by almost 30% per year long term — something that doesn’t look to be built into this game changer’s value of late as investors panic more broadly.
U.S. subscriber growth also missed expectations (which caused some concern last quarter), but investors zooming in on that statistic again miss the bigger picture here: Subscriber growth overall is going strong. The company’s 4.04 million net additions in the most recent quarter dwarfed projections, while Netflix also announced it’s expanding into a whopping 130 new countries.
The point is this: No earnings report is perfect. Investors (and the financial media) tend to cherry-pick statistics that can support or propel a stock’s movement. That’s especially true in a shaky environment like the one we are in.
But it’s during shaky times especially that savvy investors will keep their cool and think long-term. The general trend and bull case for Netflix stock is still strong, with regards to the streaming mega-trend, the company’s content, the potential for global expansion and more. There will likely be some bumps and bruises along the way, but I remain confident in NFLX stock over the long haul, despite the recent whiplash.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader,Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
