Why Netflix Inc Stock Rose 12% in May

Was it a meaningful movement, or just noise?

Demitrios Kalogeropoulos
Demitrios Kalogeropoulos
Jun 8, 2015 at 9:08AM
Consumer Goods

What: Streaming video pioneer Netflix (NASDAQ:NFLX) saw its stock rise by 12% during the month of May, according to S&P Capital IQ data. The bounce put shares at a new all-time high and up 47% in just the last year.

NFLX Chart

NFLX data by YCharts

So what: Some of that rise had to do with investors still digesting the strong first-quarter growth that the tech giant posted in mid April. In that announcement, Netflix revealed that its business saw accelerated subscriber gains in its most mature market, the United States. And contribution profit, which approximates profitability, rose to an all-time high of 32% of sales.

But Netflix's stock is also benefiting from surging optimism around its aggressive international growth plan. Several Wall Street firms boosted their price targets on the shares last month, with the key variable being subscriber projections tied to new markets including South Korea, Australia, and eventually China. Merrill Lynch, for example, upgraded the stock from underperform to buy while slapping a $722 price target on shares. Boutique investment house Pivotal Research also jacked up its Netflix price target from $650 to $850 per share while forecasting an international subscriber base of 100 million streamers by 2020.

Netflix stock ended May trading at $624 per share and has risen more than 1% since then.

Now what:  With just 21 million international customers as of April 1 (as compared to over 40 million in the U.S.) Netflix has a long way to go to hit those rosy growth projections. But CEO Reed Hastings and his executive team expect to add 2.6 million overseas subscribers in the current quarter while tacking on an additional 2.3 million in the United States. Both figures would represent accelerating gains over the prior-year period.