Netflix crushes expectations

Wow it's been a wild ride for Netflix of late. Since they peaked in July at $295 to where it is now at $95 it has been an absolute rollercoaster. The behaviour of US equities can be fascinating. They take no prisoners but when a company performs, shareholders are rewarded. Once a company hits the spotlight, the volatility becomes almost unmanageable and when the market loses confidence, the company has to really work hard to earn that confidence back.

After hours Netflix reported quarterly results which beat expectations causing the market to bid the price up a whopping 16%. If you are unaware of the history behind this company, here's a brief summary. Basically the company went from DVD deliveries to offering a streaming service that made movie watchers lives so much easier. Investors picked up on this genius move and started punting the stock. It became the darling of the market but cracks started to appear. Management made some badly timed share buybacks whilst a decision to change services and increase prices was really badly received. The stock plunged with backers and naysayers having constant persuasive battles online and on the box. And here we find ourselves.

So how did these numbers look? Earnings came in at 73c compared to consensus of 54c. A huge beat but down from the 87c made last year. The company trades on a PE of 21 which is a lot more realistic than the 40+ multiple it used to have. A correction was due. For this company it is all about the subscribers however and that is why the market liked the numbers so much. The company has 26.3mn subscribers compared to consensus of 26.1mn after adding 610 000 in the quarter. That is after losing 1 million customers in the third quarter following the dramatic changes to its services. The company still managed to add 1.7 million streaming customers last year.

I really do like the company. People love movies and as they get better with better quality home theatre systems consumption will just grow more and more. Netflix pioneered movie streaming which is such a clever and easy concept. What a waste of time to go and pick up a scratched DVD. They face tough competition however from the likes of Amazon and now with smart TV's coming into the mix, who knows who the next competitor will be. Dare I say Apple. The stock is volatile and if you are willing to ride the wave it does offer some value at these levels. Personally I would prefer to stick with the big guns.