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business newsNetflix Pulverizes the Bears After a Rare Positive Surprise
By
Michael Comeau
Jan 26, 2012 12:10 pm
The hated Netflix delivered better-than-expected results and guidance, driving an enormous short squeeze in the stock.
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Well, today it is. The embattled DVD-rental and movie-streaming service just pulled a rabbit out of its hat with its fourth-quarter earnings report, sending the stock up a whopping 22% to $115.58 today. That gives Netflix a 67% gain for the year, making it one of the best performing stocks on the Nasdaq (^IXIC).
Let's look at the numbers.
Earnings came in at $0.73 per share, which was way ahead of the $0.55 consensus. Revenues were $876 million, easily beating the average Wall Street forecast of $857 million.
Netflix's first-quarter guidance looks was also solid. The company sees a loss of $0.16 to $0.49 per share, and revenues of $842 to $877 million. The mid-point of the earnings guidance is a bit light, but the revenue forecast is above consensus.
But most importantly, the subscriber numbers are looking good. Netflix added 610,000 subscribers during the quarter, and noted that subscriber ad were tracking strongly for Q1.
This is in stark contrast to the insane losing streak that marked the second half of 2011.
Here's a timeline:
1. July 12 -- $291.27 (closing price)
Netflix announces price increases of as much as 60% for customers that subscribe to both its DVD-by-mail and streaming services. Customers start getting cranky. But hey, it's gotta make money, right?
2. July 26 -- $266.91
The company reports a monster second quarter, but lousy Q3 guidance due to the price increases’ impact on the subscriber count. Bizarrely, Netflix forecasts that it will hit $1 billion in revenue during Q4, a prediction that I considered to be completely ridiculous. Hope officially becomes a part of the Netflix case, as the company’s overly bullish Q4 outlook sets Wall Street’s expectations far too high.
3. September 15 -- $169.25
Netflix cuts its third-quarter subscriber guidance, making it clear that business was not bouncing back as expected -- another indication that the company was in the middle of a bad streak. This should have scared the living daylights out of anyone still bullish on the stock.
4. September 18 -- $155.19
Netflix announces plans to separate its DVD-by-mail service, which will be rebranded as “Qwikster.” Every customer hates the fact that they will have to deal with two websites with separate billing.
5. October 10 -- $111.62
The company ditches the Qwikster idea amidst widespread criticism.
6. October 24 -- $118.84
Netflix reports better-than-expected third-quarter revenues and earnings, but a lower-than-expected subscriber count and absolutely atrocious fourth-quarter guidance. The stock drops 35% to $77.37
7. November 21 -- $74.47
Netflix announces that it is raising $400 million in equity and convertible debt. In the company's S-3 filing with the SEC, it revealed, not so shockingly to Minyanville readers, that business is still deteriorating.
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And that's why Netflix is up so much today. A positive surprise -- even on lowered expectations -- was more than enough to set a fire when you consider how much negativity was baked into the stock.
As far as what to do with the stock going forward, I'll admit that I'm torn. One of the all-time great short squeezes is on, but even with the stock well off the $304.79 mark set last July, it still looks awfully pricey in light of the lack of profitability.
At the same time, I'm concerned about rising content-acquisition costs as I expect media companies to increasingly play hardball to get top dollar for programming. Plus, the emergence of Apple (AAPL) and Amazon.com (AMZN) as key competitors in video streaming is a very real problem.
When Apple makes its inevitable entrance into the television-set market (see: Four Reasons iTV Will Be the Easiest Money Apple's Ever Made), you can be absolutely sure iTunes will be directly integrated it.
Heck, even though it would cause the entire world to lose its collective, um, stuff, I'd love to see Apple buy Netflix, integrate it into iTunes, throw in video-game capabilities -- and pack it all into a TV simple enough for grandma to use.
Position in AAPL
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Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
