3 Reasons to Get Excited About Netflix on Oct. 14

The leading video service reports quarterly results this week. Don't be nervous.

Rick Munarriz
Rick Munarriz
Oct 12, 2015 at 7:06PM
Consumer Goods

This week is going to be provide a big test for Netflix (NASDAQ:NFLX) investors. The leading premium video service reports quarterly results on Wednesday, and it's fair to say that expectations are high.

Netflix shares kicked off the week with a stunning 132% year-to-date gain. No other component of the S&P 500 has more than doubled in 2015. It was the top gainer among the S&P 500 stocks in 2013. If it's able to stay ahead of the 499 other stocks in the index it would pull off the amazing feat of leading the S&P 500 in two of the past three years.

With big gains come big responsibilities. That means that the market will punish the stock if Netflix doesn't deliver another blowout report. That complicates things, but there are a few reasons why investors should be excited heading into Wednesday afternoon's report.

1. The price hike telegraphs positive results
Netflix's decision to boost the monthly rate of its basic streaming plan to $9.99 last Thursday turned heads. It was Netflix's second hike in two years, and a 25% increase in that time is not insubstantial.

The timing matters. Why would Netflix announce an increase less than a week before putting out its quarterly results? It probably wouldn't have gone through with the hike if subscribers were flinching at $8.99 a month. This suggests that Netflix's subscriber numbers will be strong when it reports on Wednesday.

2. Netflix has been hitting it out this year 
You don't see a stock more than double in a year when the general market is marching in place without doing some spectacular things, and that's just what Netflix has done. It has excelled at the lucrative art form of under-promising and over-delivering. It has beaten analyst estimates by 50% or better twice over the past three quarters. It fell short during this year's first quarter, but it would have been another sound beat if it wasn't for currency fluctuations abroad.

With Netflix tacking on more international users than domestic ones in each of the past five quarters this has become a true global play on entertainment. International expansion has held back Netflix's bottom-line results. Analysts see posting a healthy 24% year-over-year advance for the third quarter that it will unveil on Wednesday, but those same Wall Street pros see profitability shrinking to $0.08 a share from $0.14 a share a year earlier. If the market rightfully adjusts for any short-term abroad expansion costs the trend should continue to be upbeat.

3. Netflix goes to the movies
It's not just Netflix's quarterly report drawing attention. Beasts of No Nation -- Netflix's first major foray into original full-length feature films -- debuts on the streaming service on Friday. The movie is based on author Uzodinma Iweala's novel about a child soldier in Nigeria, and it's being directed by True Detective's Cary Fukunaga.

Netflix will probably touch on the upcoming movie during Wednesday afternoon's report, and if it indicates that investing in movies and not just shows has compelling economic dynamics it could help push the stock higher.

So, don't sweat Wednesday's report. They say that Netflix shares are priced for perfection -- a myth, by the way -- but the market darling has a funny way of being better than perfect more often than not.