Image source: Netflix.
Shares of Netflix (NFLX -0.51%) are on fire. Netflix stock has soared 22% over the past two trading days, moving sharply higher following better-than-expected quarterly results.
The stock that closed just below $100 on Monday has blitzed its way into the triple digits, and this time it's likely to stay that way. It's a familiar chin-up bar for Netflix. The stock has closed above $100 only to fall back and close in the double digits nine times this year. Logic and Netflix's historical volatility would suggest that it will happen again, but let's go over a few of the reasons why the journey north of $100 might stick this time.
1. Netflix at its worst is pretty good
All of the ingredients were in place for this to be a horrific quarter. The biggest stumbling block was the "ungrandfathering" of older accounts that were still paying $7.99 or $8.99 a month. They are in the process of migrating to the current $9.99 a month rate, and most of those hikes kicked in this summer.
That wasn't the only potential headwind that Netflix was facing during the quarter. Everything from the Olympics to Pokemon Go threatened to derail a quarter that was already following a rare miss in meeting the streaming trailblazer's subscriber guidance.
We already know how that played out. Netflix closed out the quarter with nearly 3.6 million more subscribers worldwide than it had three months earlier, 50% ahead of its forecast for just 2.3 million net additions. This was Netflix at its potential worst hitting it out of the park. It will be hard to bet against the stock through the next few quarters when these headwinds are no longer in play.
2. Competition is coming, but Netflix keeps padding its lead
Rivals aren't conceding the premium streaming market. Hulu turned aggressive late last month, offering new subscribers ad-free access at $5.99 a month for the first year. Hulu doesn't put out its premium subscriber tally, but you can be sure that it's far fewer than the 3.6 million accounts that Netflix added during the last three months.
AT&T (T 1.30%) is about to make a big push into streaming television with the rollout of DirecTV Now. AT&T's new digital offering will offer more than 100 cable channels, reportedly with no data charges through AT&T. The price being bandied about is $50 a month, making it a bigger threat to cable and satellite television providers than Netflix. UBS estimates that AT&T's DirecTV Now could land 2.5 million subscribers by 2020. That's nice, but keep in mind that Netflix added more than that in just three months.
3. Pricing flexibility is back
Netflix has no plans to increase prices in the near term. Outside of Brazil and its inflation-mandated adjustments, Netflix will stick to its current prices for now. However, it just proved that it can take its most loyal customers and charge them as much as 25% more and still post strong net additions.
It would be wrong to boost prices as Hulu is in a promotional state and Prime Video continues its content-nabbing ways. However, there's no longer the fear that customers will bolt if Netflix feels that an increase is warranted, given its ever-growing digital catalog.
Netflix is in the right place at the right time. Nearly a dozen analysts boosted their price targets this week after the strong report, and they're mostly parked on the north side of $100. Netflix survived what could've been a cruel summer, and with buyout buzz now all but dead, the speculative highs and lows should merge into Netflix's natural state as a monster growth stock.
