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Netflix Does the Unthinkable

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It took more than two years, but Netflix (NASDAQ: NFLX  ) has finally hit a fresh all-time high.

The leading video service barreled through its old high of $304.79 established two summers ago, when the market initially thought that Netflix's plan to charge separately for its streaming and DVD plans would be a goldmine. 

It didn't play out that way. Consumers balked at what translated into a pricing increase of as much as 60%. The short-lived Qwikster fiasco a few weeks later was the icing on the cake. Then came the quarter of subscriber defections, and the shocking reality that average revenue per subscriber was actually heading lower. Folks weren't paying for both plans. They were nixing their higher-priced DVD plans in favor of just the $7.99 a month streaming service.

The stock bottomed out at $52.81 last summer, and dreams of Netflix revisiting its earlier highs seemed insane. It could have happened, but it would have realistically taken years, if not a decade, for the nearly sixfold advance necessary to get the stock back above $300. 

Well, it took just a little more than a year.

Yesterday's rally was triggered, in part, by Liberty Global's (NASDAQ: LBTYA  ) Virgin Media offering Netflix in its set-top box in the United Kingdom. This is the first cable provider to directly offer Netflix. 

This has been a dream of Netflix CEO Reed Hastings for more than a year. He was talking up the prospects of being bundled into cable packages the same way as premium movie channels HBO and Showtime are. 

Netflix doesn't necessarily need this anymore. It now watches over nearly 38 million global streaming accounts. Having pay-TV companies on its side would make things easier, but it's not as if Netflix needs validation these days. Studios know that they need to go through Netflix if they want to reach a streaming and influential audience. 

However, we also saw what overconfidence did to Netflix two years ago. Is a repeat performance in the cards? The shares certainly aren't cheap by most measuring sticks. It's unlikely to be another six-bagger by next summer. 

It also doesn't help that many of the skeptics have cleared out of Dodge. The number of shares sold short have been cut by more than half over the past year. Short-squeeze rallies will be harder to come by, even though one can argue that the value of the total short positions has roughly tripled over the past year during the stock's sixfold advance.

This doesn't mean that the stock is heading lower. A breather would be perfectly natural, but it's not as if there's a disconnect between elated shareholders and frustrated subscribers the way things were two summers ago. 

Wall Street and subscribers are loving Netflix these days, and that doesn't show any signs of easing.

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  • Report this Comment On September 11, 2013, at 2:05 PM, MFMotleyStool wrote:

    OK, so is this article about the fundamentals or simply the technicals or just the stock price. At one time I thought the Motley Fool was reputable but that was long ago and far away. Now it's drivel here and crapola over there. this "article" is a little of both.

  • Report this Comment On September 11, 2013, at 3:04 PM, MFMotleyStool wrote:

    I posted a while ago and I don't see the post. the synopsis was that Motley Fool at one time was reputable in my mind. Now, not so much. More like an IBD pumping MOMOs sort of publication in general. That's great if fundamentals don't matter to you as an "investor" and what "investors" don't care about fundamentals. Eh, that would be casino going speculators. They win until the MOMOs pretty much crash. It's coming, it's just a matter of time.

  • Report this Comment On September 11, 2013, at 4:59 PM, 12OnAHunch wrote:

    The only reason this stock is where it is at is that over 80% shares outstanding are owned by 6 to 10 major holders. Who've learned if they don't sell and continue to buy the price will go up as long as there are people short on the stock. It will go down once the company has to sell additional shares to cover the monthly negative cash flow they've created and if they try to raise the monthly subscripition people will unsubscribe in droves since there is very little new content.

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Related Tickers

9/29/2016 4:00 PM
NFLX $96.67 Down -0.81 -0.83%
Netflix CAPS Rating: ***
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Liberty Global CAPS Rating: ****