Netflix Still Has a Long Way to Go

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It continues to be a redemptive year for Netflix (Nasdaq: NFLX  ) .

Shares of the video giant have soared nearly 42% in just the first five trading days of 2012.

This isn't just some lazy rally. At least 12 million shares have traded hands in each of the past four trading days. There were just two days in all of December with eight-digit trading volume. The last time that investors traded as many as the 30.6 million shares swapped yesterday was the day the stock tanked after Netflix's disastrous third-quarter report in late October.

I may have been joking when I suggested tapping CEO Reed Hastings as this young year's top CEO, but shareholders who were waiting until last year's tax-loss selling subsided to buy back into the company are certainly doing well right now.

Can the rally continue? Are the recent gains even sustainable?

Obviously a lot has to go right for Netflix to continue wooing back cynical investors.

Last week's encouraging revelation of 2 billion hours of streaming video served during the fourth quarter and this week's overseas debut in the U.K. and Ireland are great, but there are still a lot of things that Netflix needs to do.

There was also speculation by Piper Jaffray's Gene Munster on CNBC suggesting that Netflix would make an ideal takeover target by Yahoo! (Nasdaq: YHOO  ) -- but a stock doesn't pop 42% higher because some analyst is simply thinking out loud.

As great as the past five trading days have been, Netflix would still have to more than triple from here to hit the all-time highs it landed just six months ago. In other words, Netflix still has a long way to go before making all of its investors whole -- and we're not just talking about the distance that the stock needs to travel.

After scaring away 800,000 net subscribers during the third quarter and warning of near-term losses, Netflix will have to stop the bleeding on both fronts before its stock can rest comfortably in the triple digits.

The good news is that folks are no longer making Netflix jokes. No one's calling yesterday's overseas rollout Quidster. Well, I just did, but that's about it. (Call me if you want that one, Jay Leno.)

Even the official blog entry detailing Netflix's entry into the U.K. and Ireland was generally greeted by praise and excitement. Folks from other European countries lobbied for their homelands to receive Netflix next. The initial users -- comparing it to's (Nasdaq: AMZN  ) LOVEFiLM -- rated it superior in terms of content (which is a surprise) and quality (which is not, since LOVEFiLM still only streams in standard definition).

Netflix is winning back the respect of its customers, and that in turn will earn it renewed support of studios. It will be a long road back, but at least the company's finally turning in the right direction.

Motley Fool co-founder David Gardner has been a fan of Netflix as a disruptor for nearly a decade, but there's a new Rule-Breaking mutlibagger that he's getting excited about these days. Learn more in a free report that you can check out now.

The Motley Fool owns shares of Motley Fool newsletter services have recommended buying shares of and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 10, 2012, at 12:27 PM, BioBat wrote:

    Netflix didn't scare away 800,000 subscribers, they p!ssed off nearly 6 million and only countered that with a gain of a little over 5 by saying "hey, we know our service hasn't been up to snuff this past 6 months with multiple service outages and lost content (Sony) so we're nearly doubling our prices". It's that kind of bad will that sours customers for life.

    It'll take a long time for Netflix to win back this customer.

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