Yesterday's debut of Arrested Development will surely be a big winner for Netflix (NFLX 0.50%). The leading video service has a couple of advantages here that it lacked in its three earlier forays into first-run exclusive content.
For starters, Arrested Development already has a built-in audience. That's a slam-dunk for Netflix. Even with the star power of Kevin Spacey and David Fincher for February's House of Cards, there was always a question of whether folks would tune in. People didn't know those characters. Lots of people know the Bluth family.
Another major advantage Netflix has -- and this is something that only Netflix has -- is that it knows the cult fave's growing popularity better than anyone else. It's been streaming the first three seasons for a long time. It knows viewership trends. It knows whether the folks who watch stick around more than those who don't. It knows what other shows they watch, making other connections to arrive at folks who will probably be fans in the future.
Everything is falling into place before we even get to the first wave of reviews of the actual quality of the fourth season. All is good at Netflix after its shares more than quadrupled since bottoming out last summer.
But what if Arrested Development is its iPhone 5 moment?
Most investors know that Apple (AAPL 0.85%) stock peaked at $705.07 late last year. It has shed a brutal 37% of its value since then, even as consumer tech stocks have been generally rallying. What most investors don't know is that Apple's stock hit that high on the morning of Sept. 21, 2012 -- the day the iPhone 5 hit retailers.
Is Netflix another "sell on the news" investment? Will the big gains that have been building ahead of a highly anticipated event -- the iPhone 5 for Apple last September, and Arrested Development for Netflix now -- get wiped out after the catalyst has run its course?
Probably not.
The downside of upside
It certainly wouldn't be a surprise to see Netflix take a breather here. The stock has had a huge run since last summer, and we're now two months away from the next likely upside catalyst, when the company turns in what should be another strong quarterly report in late July.
However, there's little reason to expect an Apple-esque collapse here. Margins and analyst estimates have been heading lower at Apple in recent months, and the exact opposite is happening with Netflix.
Two months ago, analysts thought Apple would earn as much this fiscal year as it did in fiscal 2012. Now those same pros don't even see Apple earning as much in fiscal 2014 as the consumer-tech giant earned last year. Netflix estimates are going in the other direction.
Apple's iPhone 5 peak came when an onslaught of competition was on the way. New Android, Windows, and even BlackBerry devices have blurred the marketplace. Netflix, on the other hand, has no real competitor. There's no other service approaching a billion hours of streamed content, and Netflix's lead will continue to grow as it keeps parlaying the revenue being generated by more than 33 million global subscribers into more licensing deals.
That doesn't mean Netflix investors can rest easy. The stock could take a hit from these heights based on valuation concerns. Apple was never expensive by valuation metrics. It was the graying fundamentals that tripped it up. Netflix isn't exactly cheap these days, even if you back out the operating losses overseas.
However, until we can see the ceiling for Netflix's model -- and we don't appear to be there just yet -- it would be premature to expect a post-Arrested Development collapse. A correction? Sure. A full-blown Bluth calamity? No way.
