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5 Reasons Netflix Stock Will Soar in 2015

Netflix, Inc. (NASDAQ:NFLX) is one of those stocks Wall Street just can’t keep down.

5 Reasons Netflix Stock will Soar in 2015Back in 2011, Netflix stock was trading at almost $300 a share before it crashed and burned on an ill-advised plan to split the company’s DVD business from its streaming business. It got as low as under $60 a share … but then NFLX stock went on another tear up to about $490 on strong customer retention on original programming, and continued expansion at home and abroad.

Since October, NFLX stock had been taking it on the chin again in the wake of weak Netflix earnings for the third quarter. Specifically, the streaming video company showed worse-than-expected subscriber growth, and investors abandoned ship as a result to push down the stock about 30% in a matter of months.

That all changed this week, when Q4 numbers blew the doors off and sparked an instant 25% pop in NFLX stock as a result.

So should investors believe in this Netflix surge after earnings, or is it just a head fake?

I, for one, think it’s a rally that’s sustainable — and here are five reasons why:

Continued Streaming Dominance: Bears have been saying for a while that Netflix is going to lose its first-mover advantage as streaming competitors like Hulu and Prime Instant Video from Amazon.com, Inc. (NASDAQ:AMZN) eat into market share. But all signs point to Netflix keeping its share of the pie — and that the pie itself is growing to boot. Consider that last quarter, NFLX stock added 4.33 million subscribers — topping forecasts of 4 million new customers added — and brought its total worldwide customer base to 57.4 million with some 39.1 million in the U.S. alone. Hardly sounds like NFLX is losing ground in the streaming video war.

International Potential: Back in October, I warned that expensive international expansion could hurt Netflix stock. And while this segment continues to operate in the red, it’s important to note that marketing costs will not stay elevated forever and that margins here should improve in 2015. Consider that marketing soared for NFLX overseas operations in Q4 2014 to $116.2 million — roughly double Q4 2013 numbers! This is painful now, but is important to getting subscribers in the pipeline … because renewals are a much higher-margin business than new customer acquisition. Investors need to remember this, and not get too pessimistic about short-term margin pressure on the global side of NFLX.

Sentiment Is Strong: As with all high-octane growth stocks, sentiment and narrative are the name of the game. And while investors were negative on Netflix stock a few weeks ago, this amazing earnings performance has flipped the script. Consider that Netflix short interest at the end of the year was at its lowest level since mid-April — so this was not just a “short squeeze” where tons of bearish traders were racing to cover their bets. The pop was based on real optimism, and that is crucial to a momentum growth stock like Netflix.

Plenty of Ready Cash: At the end of December, Netflix boasted some $1.6 billion in cash and investments — basically unchanged from the previous few quarters. Considering the big-time expenses Netflix had been making across 2014 on building out streaming operations overseas and creating original programming like Marco Polo, seeing that cash cushion remain consistent is a good sign for investors. That kind of bank account gives both stability to NFLX stock, and the dry powder necessary to make a move in 2015 if it chooses.

Few Growth Options: The bottom line is that earnings season is going to be rough for many other stocks out there, what with crashing crude oil holding back the energy sector and corporate profits in general running into Q4 headwinds. If investors are looking for real growth in 2015, there aren’t a lot of options … but once again, Netflix has proven to investors that it is still going strong. That makes it attractive amid a sea of other less attractive investment options right now.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/netflix-stock-nflx-2015/.

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