Why Netflix, Inc. (NFLX) Stock Just Hit All-Time Highs

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NFLX - Why Netflix, Inc. (NFLX) Stock Just Hit All-Time Highs

Source: Via Netflix

Shares of Netflix, Inc. (NASDAQ:NFLX) are soaring in the after-hour session Wednesday, rising as much as 11% to an all-time high to $145 after the company absolutely crushed Wall Street’s subscriber estimates.

Why Netflix, Inc. (NFLX) Stock Just Hit All-Time Highs

And investors who bought NFLX stock based on my recommendation? You’re welcome. And given Netflix’s better-than-expected 2017 outlook, these shares have yet to peak.

Netflix Fourth-Quarter Earnings

In the three months that ended December, the Los Gatos, California-based company posted fourth-quarter earnings per share of 15 cents on revenue of $2.48 billion, marking year-over-year increases of 50% and 35%, respectively. Analysts expected Netflix to report earnings of 13 cents a share on $2.47 billion in revenue, according to Thomson Reuters consensus estimates.

The strong top- and bottom-line beat was driven by strong subscriber growth. The company added 1.93 million subscribers in the U.S. and 5.12 million internationally, which demolished the company’s own forecast for 1.45 million net subscribers adds in the U.S. and 3.75 million subscribers internationally. Both measures surpassed Wall Street’s estimates for 1.27 million in the U.S. and 3.32 million net subs internationally.

As it stands, NFLX added 7.05 million net new global subscribers in the quarter, beating its forecast of 5.20 million. As with the third quarter, the price hike Netflix enacted on grandfathered subscribers didn’t hurt the company to the extent analysts predicted.

Notably, the price hike — when factoring the company’s increased content spending — was likely the major reason for the bottom line beat, which grew 50% year over year.

More Bang for Its Buck

For all of 2016, Netflix, which ended the year with almost 94 million subscribers, said it generated $8.3 billion in global streaming revenue (35% year-over-year growth). Of that total, fourth quarter global streaming revenue grew 41% year over year to $2.4 billion, while contribution profit rose 74% YOY to $470 million (20% margin).

The margin improvement is significant because it underscores how efficient Netflix streaming investments have become.

“This quarter marks the 10-year anniversary of our launch of streaming,” CEO Reed Hastings said in a letter to shareholders. “The next decade will be even more amazing and tumultuous as internet TV supplants linear TV, and as we strive to remain a leader.”

Ahead of the quarter there were concerns that the company’s content spending would impact the bottom line, that didn’t happen. As with the bottom line beat, the company’s spending on content for hit shows like Stranger Things, Narcos, and Marvel’s Luke Cage drove the subscriber beat. In other words, Netflix is deploying its cash where it’s getting the best bang for the buck.

To that end, investors of NFLX stock should expect many more bucks in the quarters ahead.

Bottom Line for NFLX Stock

Netflix shares might not scream bargain today, but it’s tough to ignore the appeal of a platform that should exceed 100 million global users this year.

With fiscal 2017 EPS estimates of 94 cents per share now seem “conservative,” which already called for a more than 90% rise on 25% increase in revenue, NFLX stock should reach $160 to $165 in the next 12 to 18 months, delivering some 15% returns.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/01/netflix-inc-nflx-stock-all-time-highs/.

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