Shares of Netflix (NASDAQ:NFLX) rose 26.8% in January of 2019, according to data from S&P Global Market Intelligence. The streaming video veteran started out with several analyst upgrades as Wall Street players positioned themselves for a midmonth earnings report. That turned out to be the right idea.
In early January, several analyst firms decided to upgrade Netflix, boost their target prices for the stock, or both. For example, Goldman Sachs slapped a $400 price tag on the stock alongside a top-of-the-line "conviction buy" rating. Netflix shares rose a couple of percent on that well-respected firm's move alone.
Sticking with Goldman's example, analyst Heath Terry saw Netflix's subscriber growth tracking higher than management's guidance for the fourth quarter. Terry saw this as an indicator of strong business trends and expected the company to start producing positive cash flows no later than 2022.
When the actual earnings report rolled in, Wall Street's finest had already pushed Netflix's share prices high enough to leave the stock largely unmoved by the financial data. The company added 8.8 million net new subscribers in the fourth quarter, driving revenues 27% above the year-ago period's result. These figures were indeed well ahead of management's guidance targets.
Netflix also raised the monthly fees for domestic subscribers in January, which investors saw as a value-boosting idea. The direct effects of that change will show in future earnings reports, starting with the first-quarter update in April. The posted guidance targets for that period show that management expects to add 1.6 million domestic accounts in the first quarter, up from 1.5 million in the fourth quarter. Consumers can still prove them wrong, but Netflix does appear to have chosen a profitable long-term strategy here.