Netflix Hits 50 Million, but That's Not Enough

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.  

Risk-free for 30 days: The Motley Fool's flagship service
Tom and David Gardner founded The Motley Fool over 20 years ago with the goal of helping the world invest ... better. Their flagship service, Stock Advisor, has helped thousands of investors take control of their financial lives and beat the market. Click here to sign up today.



Read/Post Comments (1) | Recommend This Article (4)

Comments from our Foolish Readers

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.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3045774, ~/Articles/ArticleHandler.aspx, 12/17/2014 4:39:13 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement