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

To look at it from another perspective, Netflix earned EPS of $3.94 in the 12 months ending on June 30, 2011 — prior to the failed price increase/Qwikster spinoff. That was also the last time that Netflix shares traded for $300. By contrast, Netflix earned adjusted EPS of just $1.06 over the last 12 months. Netflix’s earnings and growth rate have both dropped over the last two years, so why is the stock back near its all-time high?

No news is apparently good news
In context, it seems clear that investors had good reason to demand a stellar earnings report from Netflix back in July. When the earnings report was just “good,” many investors quite understandably decided to pocket their gains.

Furthermore, there hasn’t been much weighty Netflix-related news to justify the stock’s recent pop. In the past two weeks, Netflix has announced two new stand-up comedy specials. However, as one-time events, it is unlikely that these specials will move the needle on subscriber growth.

Netflix also announced a new exclusive licensing agreement with The Weinstein Company last month. This could potentially be a significant win for Netflix, given the success of many recent TWC movies. That said, the agreement doesn’t go into effect until 2016, and the movies it covers have not even been made yet! (Pricing terms were not disclosed, either.) As a result, this does not seem like market-moving news, either.

Foolish conclusion
Overall, Netflix, Inc. (NASDAQ:NFLX)’s after-earnings pullback in late July makes a lot more sense from a fundamental perspective than the subsequent rally. While Netflix is certainly improving its performance every quarter, it would need to grow a lot faster to justify its valuation of nearly 90 times forward earnings.

A stellar valuation multiple requires stellar performance. Moreover, Netflix is years away from “growing into its stock price,” even in a bullish scenario. As a result, if Netflix continues to post good — but not great — results, the stock is likely to collapse eventually.

The article Didn’t Netflix Have a Bad Earnings Report? originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg is short shares of Netflix and is long December 2013 $275 puts on Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix.

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