Why Netflix, Inc. Gained 14% in January of 2017

The digital-video maven dropped a solid fourth-quarter report and outlined a plan for profits in 2017.

Anders Bylund
Anders Bylund
Feb 4, 2017 at 5:04PM
Consumer Goods

What happened

Shares of Netflix (NASDAQ:NFLX) rose 13.7% in January of 2017, according to data from S&P Global Market Intelligence.

So what

The fourth-quarter report was largely in line with analyst expectations and management's own guidance, at least in financial terms. But the company also added 5.1 million net new subscribers globally, far ahead of the 3.2 million guidance target. Furthermore, CFO David Wells outlined a sixfold year-over-year earnings increase in the first quarter and noted that the rest of the year should stay at that much higher level of profitability.

Fellow Fool Jeremy Bowman explained the underlying revenue and margin trends in three simple charts -- highly recommended reading for Netflix investors. Here's a taste:

Netflix domestic contribution margin. Image source: Infogr.am.


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Now what

Netflix keeps adding millions of new subscribers, even domestically, when critics argue that growth opportunities are running low. The company plans to turn a substantial and predictable profit in the coming quarters and years, and cash flows will eventually catch up when the cash-intensive content-production strategy matures.

This is still the largest holding in my personal portfolio, and the one stock I would recommend buying now over all others. Netflix is building a fantastic runway to decades of media industry disruption and world-beating growth.