Netflix (NASDAQ:NFLX) shares went the wrong way this week, even as the leading premium video service's fundamentals improved dramatically. Revenue climbed 37% in Netflix's latest quarter, with profitability soaring 145%.
Netflix is now topping 50 million streaming subscribers worldwide, and true to the scalable nature of its model, we're seeing margins expand as Netflix grows its subscriber base. That makes sense. As Netflix's user base gets larger, it can invest in more content that gets divided into more accounts. Netflix closed out the period with $7.7 billion in streaming content obligations. It's going to be hard for anyone to make that kind of financial commitment.
Although Netflix was once again showing off its niche dominance, the market wasn't impressed. The stock closed lower in each of the four trading days following Monday afternoon's report. In a week where the tech-heavy Nasdaq posted a modest gain, Netflix stock declined by 5%.
One can always argue that Netflix stock had already discounted a strong quarter. Netflix was the best performer among all of the S&P 500 stocks last year, and it has notched a 15% gain in 2014. Mr. Market can be finicky when it comes to companies that have seen their shares appreciate dramatically ahead of an earnings report. Netflix investors learned that the hard way this past week.
Briefly in the news
And now let's look at some of the other stories that shaped our week.
- Amazon.com (NASDAQ:AMZN) shares moved lower after posting disappointing bottom-line results. The market has historically been patient with Amazon's margins as long as sales growth continues at a healthy pace, but now it seems as if investors aren't as forgiving when the leading online retailer pursues new growth opportunities.
- Apple (NASDAQ:AAPL) posted quarterly results, with strong iPhone and Mac sales more than offsetting declines in its iPad and iPod lines, but that's not the only way Apple generated headlines during the week. Apple also confirmed the purchase of BookLamp, a developer of a book recommendation service. It's clear that e-books still matter to Apple, especially as it tries to differentiate its iPad from cheaper tablets that are gaining market share at Apple's expense.
- Tesla Motors (NASDAQ:TSLA) has been making waves with the naming of its Model III sedan that will hit the market in three years, but this week it idled production at its Fremont facility to start making the Model X crossover that will hit the market next year.
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Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Amazon.com, Apple, Netflix, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.