Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Didn’t Netflix, Inc. (NFLX) Have a Bad Earnings Report?

Page 1 of 2

Back in July, Netflix, Inc. (NASDAQ:NFLX) released a decidedly mixed earnings report. While EPS came in ahead of expectations, many investors were expecting faster domestic subscriber growth than the 630,000 net additions Netflix, Inc. (NASDAQ:NFLX) reported. Investors, who had driven Netflix stock up from its 52-week low of $53.05 to nearly $270 in the previous 10 months, decided to take a breather.

NFLX Chart

Netflix Price Chart: 7/17/13-7/24/13, data by YCharts.

This caused significant selling pressure. In fact, as the chart shows, investors were so disappointed that they drove Netflix stock down by around 10% in the week surrounding Netflix, Inc. (NASDAQ:NFLX)’s second-quarter earnings report.

Netflix, Inc. (NASDAQ:NFLX)

Fast-forward to today, and the situation is quite different. Not only has Netflix regained all the ground that it lost after its earnings report, the stock has also surged 10% beyond that level. Last week, Netflix, Inc. (NASDAQ:NFLX) stock flirted with the $300 level, reaching a high of $298.93 — just below its all-time high of approximately $305.

NFLX Chart

Netflix Price Chart: 7/17/13-present, data by YCharts.

What’s going on here? Was the initial reaction to Netflix, Inc. (NASDAQ:NFLX)’s earnings report wrong? Or has the subsequent run-up been unjustified?

Mixed earnings
Netflix’s second-quarter earnings report was by no means “bad.” The company added 630,000 domestic subscribers (net of cancellations), better than the 530,000 net adds it reported for second-quarter 2012. EPS hit $0.49, the best result achieved since Netflix’s meltdown in late 2011. On the flip side, for the first time, Netflix, Inc. (NASDAQ:NFLX)’s management team mentioned “saturation” of the domestic market as a risk in the quarterly investor letter.

Looking at the earnings report in isolation, even these words of caution could not justify a significant drop in the stock price. Domestic and international membership growth continued at a steady clip, net income grew dramatically, and the company even generated positive free cash flow — albeit a modest amount.

NFLX Chart

Netflix 1 Year Price Chart, data by YCharts.

Zoom out, though, and it’s hard to fault people for selling Netflix at $270. The stock had quintupled in less than a year! Even if Netflix was undervalued in 2012, it’s hard to find a basis for the stock’s massive gains since then in the company’s financial improvement over that time. Revenue is growing at a 20% clip and margins are expanding, but many other companies with lower valuations are growing revenue and/or margins faster than Netflix.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!