Netflix has become increasingly popular in the finance world and in the media. With an endless stream of news stories, from the Qwikster debacle to Reed Hastings' Facebook posts, it's tough for investors to know which headlines are important and which ones are just noise. In this video, Jim Mueller tells us exactly what reports we should be tuned in to.
First, subscriber growth is an essential component of Netflix's business model. When the share price was rocketing up to about $300, Netflix's growth year over year approached 70%. Following the Qwikster debacle, growth is running at about 20%-25%. Those numbers are still healthy, but investors should keep an eye on Netflix's growth and be cautious if those rates begin to slide.
Second, management has been issuing quarter-ahead guidance on subscriber growth since at least 2006, and there's been an overestimate only four times. The Qwikster incident resulted in a 3.9% miss, but the other misses were around 1% off. in general, when management isn't spot-on with its estimates, it's conservative. Management understands the business and can provide reliable forecasts that investors can use.
Austin Smith owns shares of Google. Jim Mueller owns shares of Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com, Google, and Netflix. Motley Fool newsletter services recommend Amazon.com, Google, and Netflix. 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.