Netflix, Inc.: Why Netflix Stock (NFLX) Is Trading Near Record Highs
By Gaurav S. Iyer, IFC Published : January 11, 2017
Our Netflix Stock (NFLX) Forecast Was 100% Right
Since shares of Netflix, Inc. (NASDAQ:NFLX) logged 30% gains last quarter, it’s safe to say the share price has recovered from its mid-2016 blues. Few analysts believed that Netflix stock (NFLX) could pull off such a spectacular comeback…that is, except us at Profit Confidential.
Sorry for tooting our own horn, but it’s true. In early February, when NFLX stock was hitting grisly depths, our reports sliced through the market pessimism. Netflix stock had traded in this pattern before, so we recognized the slump as an opportunity rather than a death spiral.
The writing was there on the wall, clear as day.
Just look my comments in the same week that NFLX hit a bottom of $82.79. Investors were getting spooked by Netflix’s rapid cash burn, but I maintained that spending that money was essential to the future of NFLX stock. Bear in mind that Netflix stock is currently trading at $130.00. (Source: “ NFLX Stock: The Ridiculously Simple Reason to Be Bullish on Netflix ,” Profit Confidential, February 2, 2016.)
“Netflix started pouring money into original content [because]…customers are loyal to themselves more than anything else—that’s what Reed Hastings understands. They will gravitate towards content that engages them. They don’t care about corporate politics or stock prices.”
It turns out my comments were fairly prescient. Despite the enormous amounts of money spent by Hulu, LLC and Amazon.com, Inc. (NASDAQ: AMZN ), Netflix still managed to attract millions of new users this year.
It did so because of exclusive content such as Stranger Things and Marvel’s Daredevil. These shows brought in huge numbers, far outpacing anything offered by Amazon or Hulu.
But these shows do more than attract new customers; they also keep old users attached to the service. It’s pretty hard to cancel your Netflix subscription if it means losing three or four of your favorite shows. Believe me, these benefits are more than arbitrary.
Original content cements the relationships between Netflix and the customer. That, in turn, allows the company to raise its monthly subscription fee. For instance, in another report from early 2016 , I calculated that Netflix’s planned fee hikes could bring an extra $1.26 billion per year. (Source: “ NFLX Stock: This Could Send Netflix Inc. Surging After Earnings ,” Profit Confidential, April 16, 2016.)
On a quarterly basis, this works out to roughly $315.0 million. My prediction was that Netflix’s revenues would jump by that amount before the end of 2016 and, as a result, Netflix stock would rebound with a vengeance. But I was too cautious—revenues went up by $345.0 million instead.
To my utter lack of surprise, NFLX stock broke free of the pessimism and leaped skywards. Its share price jumped nearly 19% in the hours after earnings were released.
Now that another quarterly review is around the corner, we believe that Netflix stock could carry this momentum forward. We have been right on the money with NFLX stock in the past, so keep an eye on this stock right now—it still has room left to run.
Editor’s Note: Hi, Gaurav S. Iyer here. If you enjoyed this article, you can get more of my opinions and commentaries in our popular daily tech letter, Profit Confidential. Published daily, it’s FREE! Join us when you click here now .