Netflix, Inc.’s (NFLX) Stock Is as Hot as Its Content

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Netflix, Inc. (NASDAQ:NFLX) has gained 50% so far this year and has almost doubled over the last 12 months. On July 18 alone, NFLX stock rose more than 10% — gaining to a record — thanks to a strong second-quarter earnings report.

Netflix, Inc. (NFLX) Stock Is Becoming As Popular As The Network's Content
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For context, as recently as 2014, shares were worth less than $50.

Of course, “strong” is perhaps a misnomer for the earnings report. Netflix actually fell short when it comes to actual earnings. The company posted an adjusted EPS of 15 cents per share while Wall Street had been hoping for a penny more.

That’s only a slight miss, though, which is why it was overshadowed by other better-than-expected results in the quarterly report.

The biggest figure to Wall Street was the most positive number in the report: subscriber growth. Netflix added 5.2 million subscribers during the most recent three-month period — that’s 2 million more than Wall Street expected. Revenue also enjoyed a 32% year-over-year expansion. That all conspired to send NFLX stock up about 15% over the past week.

CEO Reed Hastings said the company crossed the symbolic milestones of 100 million members with more international than domestic members. It attributed its strong subscriber increase to its “amazing content.” While admitting it can be difficult to predict the popularity of new content, Hastings believes word-of-mouth in emerging territories is driving growth and will continue to do so.

I agree.

The most-concerning red flag for Netflix stock is that original content doesn’t come cheap.

Netflix stock has strong growth projections, an impressive track record, and a wide moat. For the next two quarters, 167% and 101% year-over-year earnings growth, respectively, is projected, averaging out to 170% for the full year. And EPS estimates have been marching higher in recent months — a great indicator of analyst sentiment.

Emmy Nominations

The label “amazing content” seems to be objectively supported, too, and not just by the subscriber growth. Netflix original programs got 91 Emmy nominations — that’s almost twice as many as last year and more than any other network.

 

Shows like 13 Reasons Why, House of Cards, Stranger Things and Orange is the New Black continue to drive hype, buzz and viewership.

Netflix is spending $6 billion on content this year alone, $1 billion more than last year. In fact, Netflix took on $1.1 billion in new debt from international lenders in April to fund its programming. As of the just-released earnings report, that brought Netflix’s debt stack to $4.8 billion.

Still, not all debt is created equal, and Netflix’s spending would be better classified as investment. Once again, the ROI is clear, based on the subscriber growth of the most recent quarter alone — and based on Wall Street’s reaction.

Positive Sentiment on NFLX Stock

Investor sentiment couldn’t be more positive for NFLX stock right now. While the domestic market appears saturated, Netflix is getting the job done with creating content to complement its international expansion.

While investors are hardly getting Netflix stock at a bargain, sometimes it’s worth having expensive tastes. There’s no arguing the company’s momentum, dominance or success with regards to content. That will continue to translate to gains on Wall Street.

Hilary Kramer is the editor of GameChangersBreakout StocksHigh 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.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/netflix-inc-nflx-stock-is-as-hot-as-its-content/.

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