Why Netflix Shares Skyrocketed
Jan 24th 2013 2:05PM
Updated Jan 24th 2013 3:25PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Netflix were getting a standing ovation from the market today, jumping as much as 45% on a huge earnings beat.
So what: Instead of the $0.13 per-share loss analysts had expected, the video streamer delivered a $0.13 per-share profit as subscriber growth exploded. Netflix added 2 million streaming subscribers in the U.S. and another 1.8 million abroad, boosted by the growth of tablets and streaming-equipped televisions over the holiday season. Revenue grew 8%, and four analysts upgraded their ratings on the report. Though profits were considerably down from a year ago, that is mainly due to promotion expenditures as the service expands abroad.
Now what: Netflix certainly deserves a bump up after the latest report, and its new content agreements with providers such as Disney seem to be helping, but the market may be getting ahead of itself here. The company is still barely profitable and revenue is not growing particularly fast, yet it's being treated as a hot growth stock. Netflix is reaching maturity, even if the shift to streaming conceals it, and the business will never have the leverage it did as a mail-order service. Netflix deserves some applause after the latest quarter, but a 40% gain seems a little excessive.
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The article Why Netflix Shares Skyrocketed originally appeared on Fool.com.Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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