NFLX Stock Surges on Street-Beating Netflix Earnings

by Tom Taulli | January 22, 2014 5:39 pm

It’s another brutal day for Netflix (NFLX[1]) shorts.

nflx-stock-netflix-earningsNFLX stock is up roughly 18% in after-hours trading following the fourth-quarter Netflix earnings report, which once again showed that the streaming television company can keep cranking up the growth.

Netflix earnings for Q4 were an impressive six times better than last year’s at $48 million, or 79 cents per share. Revenues hit $1.18 billion, up from $945 million in the same period a year ago. Both figures topped Street expectations of 65 cents per share and $1.17 billion.

Needless to say, that kind of performance made it very easy for investors to pile into NFLX stock after the bell.

Also spurring the NFLX stock bulls was Netflix’s current-quarter forecast for 78 cents per share, which trumped the consensus estimate.

Subscriber Growth Drives Netflix Earnings, NFLX Stock Gains

The key driver, of course, is the continued strength in subscriber growth. In Q4, NFLX saw a 2.33 million increase in the domestic market, putting the total at 32.39 million. Better still, Netflix expects to reach 35.67 million by the end of Q1.

When including the international base, the overall customer count will be a whopping 48 million.

Getting this type of traction has been no easy feat. Netflix hasn’t just had to fend off competitors like (AMZN[2]), Hulu, Comcast (CMCSA[3]), Google (GOOG[4]), AT&T (T[5]) and Verizon (VZ[6]) — it has had to bid against them for content, which for several quarters has weighed heavily on the bottom line.

However, NFLX has been buoyed thanks to the company’s nimble and creative approach to original programming, including standout titles like House of Cards, Orange is the New Black, Arrested Development, Hemlock Grove, Lilyhammer and Turbo F.A.S.T. All told, Netflix programming has received more than 80 nominations for the Emmys, Golden Globes, Oscars and other prestigious awards (not to mention a few wins).

Looking forward, international growth might be counted on to help any difficulties getting additional domestic improvements. The company’s aggressive investments in foreign markets continues to pay off, and NFLX expects a lofty 60% increase in net additions, or 1.6 million.

Also, Netflix might be looking beyond adding subscribers to help the bottom line. NFLX said it’s testing out tiered services at different prices. Per its letter to shareholders:

“Last April we introduced a 4-concurrent stream $11.99 option to begin our evaluation of plan tiering. Since late last year, we have also been testing 1-stream and 3-stream variants, as well as SD/HD variations, at various price points. Eventually, we hope to be able to offer new members a selection of three simple options to fit everyone’s taste.”

However, short squeeze potential for NFLX stock might run a little dry in the short-term, considering how many are running for the exits right now.

Tom Taulli runs the InvestorPlace blog IPO Playbook[7]. He is also the author of High-Profit IPO Strategies[8]All About Commodities[9] and All About Short Selling[10]. Follow him on Twitter at @ttaulli[11]. As of this writing, he did not hold a position in any of the aforementioned securities.

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