Why Netflix Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Netflix (NASDAQ: NFLX  ) soared for the second day in a row today, gaining as much as 17% in the wake of its blowout earnings report on Wednesday night.

So what: After a 42% gain yesterday, shares were off to the races once again. There was no additional news driving the jump today -- just Wall Street continuing to reassess the home entertainment provider that was once one of its biggest bombs. In its quarterly report, Netflix surprised the market with a 13-cent per-share profit instead of a 13-cent loss analysts expected, and it added nearly 4 million subscribers in the period to reach 33 million, buoyed by the spread of tablets and streaming-equipped televisions.

Now what: I'd consider the shares overbought at this point. While Netflix is clearly not the money pit some critics had earlier claimed it was, the company is still far away from the profit levels that would merit its current valuation. DVD subscribers still contribute more profit than domestic streaming ones do, though there are more than three times as many streaming subscribers. Netflix appears to be making all the right moves with its new deal with Disney and overtures toward Sony, as well as original content, but the metrics of the streaming model are simply not as friendly as the mail-order service was. For more information on Netflix, pick up a copy of our premium research report, which details the company's opportunities and risks and what to expect in the future. You can get your copy of the report by clicking right here.