A remarkable comeback by a stock we once referred to as “America’s Stupidest Company” has sent Netflix (NFLX) to new heights.
The online subscription video giant added 1.3 million new streaming customers last quarter, helping Netflix earnings beat estimates and send the stock up more than 10% after hours. The latest move has pushed Netflix to the brink of $400 per share almost one year to the day after the stock fell to just $61.
Netflix shares have now risen more than 400% in the last year.
The latest round of stellar Netflix earnings included net income that was four times what it was a year ago, a 22% year-over-year revenue increase, and a fourth-quarter forecast that well outpaced analyst expectations. Netflix also passed another important benchmark: with 31 million U.S. subscribers, the company now has more subscribers than the estimated 29 million HBO – the 41-year-old pay-VT channel – has.
My colleague and founder of this company, Ian Wyatt, saw this coming. Netflix was his 2012 stock pick. He called it, “Buying America’s Stupidest Company.” At the time, Netflix had been beaten down by a rash of very public humiliations. Company CEO Reed Hastings tried unsuccessfully to break the company into two websites, then apologized for doing so in a late-night (and possibly drunken) email to subscribers.
Netflix also jacked up its prices by 60%, further annoying subscribers and prompting some of them to abandon ship. The bad publicity pushed what was once a $300 stock all the way down to a $63 stock. Netflix’s fall from grace took only four and a half months.
But one of Ian’s value investing principles is “buy bad news.” And in the case of Netflix, he was right. The fundamentals of what had made the company successful hadn’t changed. Netflix was still the dominant force in video, having put Blockbuster out of business. And it was just scratching the surface of its potential overseas.
In the nearly two years since Ian recommended Netflix, the stock has been one of the top performers on the market. The company has recovered from Hastings’ series of embarrassing missteps, signed new streaming deals with major film studios such as Disney, and expanded its subscriber base both in the U.S. and overseas.
Today’s Netflix earnings are proof that the company isn’t slowing down anytime soon.
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