Netflix, Inc. (NASDAQ:NFLX) shares went up 17% yesterday hitting $390.56 after the company revealed that it was far above consensus expectations, earning 79 cents per share on $1.175 billion in revenue compared to the consensus 66 cents per share on $1.17 billion for the fourth quarter, reports Chris Ciaccia at The Street.
Netflix passes 33 million streaming subscribers
Netflix, Inc. (NASDAQ:NFLX) added 1.74 million subscribers in the fourth quarter, and it now has more than 33 million streaming subscribers. Netflix said that it expects to have more than 35 million by the end of this quarter. Management also said that it expects to earn 78 cents per share this quarter, compared to the consensus 76 cents per share. Analysts have become increasingly bullish on Netflix, Inc. (NASDAQ:NFLX), and after this big surprise some have even set $500 price targets.
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Streaming is Netflix’s future
There’s no question that streaming is the future of Netflix’s business; as CEO Reed Hastings has said before “We named the company Netflix, Inc. (NASDAQ:NFLX) for a reason; we didn’t name it DVDs-by-mail.”
But even as the stock price rose through 2013 and most analysts got on board with the business model, some have continued to doubt whether Netflix will be able to keep up the pace of new subscribers. To some extent, Netflix, Inc. (NASDAQ:NFLX) acknowledges the challenge, saying that it will be hard to keep growing at 4% per year once it has pushes its contribution margin to 30%, which the company estimates will be in 2015.
But the disagreement among analysts hasn’t really been about operations, which most seem happy with, but whether Netflix, Inc. (NASDAQ:NFLX) will be able to generate and license enough high quality content to give people a reason to subscribe even as other companies get in to the business. Netflix doesn’t exactly have the streaming video sector all to itself, but it is mostly competing against either smaller companies or traditional TV companies that are moving into streaming as a side business to distribute their own content through additional channels (like HBO or ESPN).
Whether Netflix, Inc. (NASDAQ:NFLX) can hold on to the big lead in market share that it has developed so far will determine whether or not those $500 price targets are justified.