Netflix stock surged on Tuesday after second-quarter subscriptions crushed expectations. With the media giant on top of the world, is there anything Netflix investors should worry about? Money Morning Technical Trading Specialist D.R. Barton, Jr., joins Neil Cavuto to weigh in.
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Stock market investors celebrated the continuing economic downturn by driving stock prices higher again last week. The Dow Jones Industrial Average rose 132 points or 0.8% to 17,215.95 while the S&P 500 added 18 points or 0.9% and the Nasdaq Composite Index jumped 1.2% to 4886.69. The worse things get, the more investors believe that the Fed will delay any interest rate increase into 2016.
They are probably being too optimistic. At the rate things are going, we may not see an interest rate increase until Barack Obama leaves office. And if we do, it won't be more than a token 25 basis points that won't amount to a hill of beans.
And that probably isn't a coincidence. Mr. Obama has appointed every member of the Federal Reserve's Board of Governors. This is highly unusual. The Federal Reserve Act provides for terms of 14 years, but in the past two decades the average tenure of governors has dropped to five years. This has arguably reduced the independence of the board.
By almost any measure, Netflix, the Internet television "network" that has changed the nature of the industry, is all the rage.
After announcing blowout first-quarter revenues of nearly $1.57 billion and 4.88 million new subscribers - well above its 4.33 million guidance number - Netflix soared over 25%.
The Netflix story is a work in progress, but I see its most recent results as another chapter on the way to even more profitable opportunities going forward.
Netflix Inc. (NASDAQ:NFLX) has been hamstrung by ISPs like Comcast Corporation (NASDAQ:CMCSA) and Verizon Communications Inc. (NYSE:VZ), which have slowed its streaming service as a negotiating tactic, allegedly to make the company pony up money to retain the ability to serve its millions of clients. That's now over, since the Federal Communications Commission (FCC) has now sided with net neutrality.
Netflix Inc. (Nasdaq: NFLX) stock climbed 13% afterhours today (Tuesday) after the company smashed Q4 earnings estimates.
NFLX reported earnings per share (EPS) of $0.72, topping analysts' predictions of $0.44.
The video streaming subscription business model that Netflix, Inc. (Nasdaq: NFLX) helped pioneer is why Wall Street is so in love with the stock, but it's also why the company is a prime acquisition target.
And while the company's $27 billion market cap would greatly narrows the list of potential suitors, the companies with the most to gain from buying Netflix also happen to be some of the wealthiest on the planet - the titans of tech.
Netflix was the best-performing stock in the S&P 500 in 2013, gaining more than 312% for the year. The good times continued into this year, with NFLX up 25% year-to-date as of March 6. But since then the stock has plunged nearly 20%.
Netflix Inc. (Nasdaq: NFLX) stock was one of the biggest success stories of 2013 - soaring 312% - and should be reflected in Q4 earnings.
NFLX is projected to report Q4 earnings of $0.66 per share today (Wednesday), up from $0.13 last year. Revenue estimates are also optimistic at $1.17 billion for Q4. That's up 24% from 2012.
The key figure is new users. Netflix is expecting to report 2 million new subscribers for the fourth quarter. That's after adding 1.3 million new customers in the United States in the third quarter.
Today (Tuesday), Money Morning Defense & Tech Specialist Michael A. Robinson appeared on FOX Business' "Varney & Co." to discuss whether the most interesting companies of 2013 will make for next year's best investments.
Netflix stock has soared 440% in the past year, and 275% year-to-date. And this week the company said it added 1.3 million new U.S. customers, putting it ahead of even HBO. Yet there's this pesky $85 million gap between net income and cash flow, and now Carl Icahn has pulled out half of his investment.
The company recently announced it added over 2 million new domestic subscribers (at $7.99 per month) in Q4/2012. In all, NFLX ended the year with 25.47 million paid subscribers - blowing away expectations. Here's what that means for shareholders.
Icahn took a nearly 10% stake in the company through shares and long-term, over-the-counter call options mostly purchased at prices below $60.
In afternoon trading on Thursday, Netflix shares were down slightly, trading just under $79.
That means that Icahn and his partners are sitting on gains of between 30% and 44% on Netflix shares and call options purchased between Sept. 4 and Oct. 25, according to Schedule 13D filed with the U.S. Securities and Exchange Commission (SEC) yesterday.
That alone should put Icahn firmly in the genius category.
What is Carl Icahn's motivation for acquiring his stake in Netflix?
"I believe that there is going to be great consolidation between Netflix and, everybody's read about it, Amazon or Microsoft or Verizon or Google, there are so many possible combinations," Icahn told Bloomberg TV.
The reason panicked investors dumped shares was because they learned that new subscribers in Netflix's domestic streaming business fell well short of management's aggressive guidance. Netflix predicted six months ago it would add 7 million streaming U.S. customers by the end of 2012, but it's now on pace to only add 5 million.
Now that NFLX stock is hovering around $60, is the market telling us that the Netflix growth story is over, and you should ditch shares like yesterday's sellers? Or are investors being handed a golden opportunity to buy Netflix at a bargain basement price?
To answer that, let's take a look at what's driving Netflix earnings.
At the heart of the conflict is Level 3 Communications Inc. (Nasdaq: LVLT), a little-known network operator that handles Netflix content. Comcast has increased the fees it charges Level 3 to carry streaming Netflix videos over its cable network. That decision goes against conventional principles of so-called "network neutrality," under which network operators exchange traffic for free when similar amounts of information flow in each direction. Such exchanges are known as "peering."
Net neutrality also prohibits network owners like Comcast from discriminating against Internet companies by blocking or slowing access too their content.