Why Netflix Stock Might Be Interesting For Tech Investors?

By Victor Thomson , Jan 19, 2017 03:31 AM EST

After Netflix posted subscriber numbers that crushed its own guidance and went above Wall Street's expectations, the company's shares went up as much as 9 percent in late trading on Wednesday, Jan. 19.

Netflix Stock Increase

According to CNBC, in extended trade on Wednesday, Netflix stock was last seen about 8 percent higher, at a value near $144, as more than 3 million shares were traded in the session. This happened after the company announced 7.05 million new subscribers added during the fiscal fourth quarter. That figure was the largest-ever quarterly subscriber growth in its history, being also well above company's own expectations of 5.2 million.

Netflix added for the quarter 5.12 million memberships internationally and 1.93 million subscribers in the U.S. Those figures came in well above the company's own forecast that it would add 3.75 million subscribers internationally and 1.45 million subscribers in the U.S.  Market analysts also expected Netflix membership numbers to come in slightly below those levels, about 3.73 million internationally and 1.44 million in the U.S.

According to Fortune, this is only the latest Netflix stock value increase. For the last several years, company's stock has been high. Market analysts are expecting the investor binge to continue after the company has announced better-than-expected earnings.

Investing in Netflix stock

Some shareholders are wondering whether the stock's skyrocketing valuations could represent a signal of an eventual tumble to follow in the near future. According to market experts, this is highly improbable, since the company has a solid revenue increase as well. According to company's data, Netflix has a 41 percent revenue increase over the year-earlier quarter for the fourth quarter of 2016.  For all of 2016, Netflix reported $8.3 billion in streaming revenue. That represents an increase of 35 percent from 2015.

Netflix stock has risen almost 650 percent over the past five years. This is more than six times as much as the Nasdaq and more than nine times as much as the S&P 500. Netflix stock has been relatively volatile, suffering high-profile swings and occasionally big dips. However, Netflix has climbed and the overall trend has been positive,

Company's price-to-earnings ratio has become very interesting. Wednesday, at market close, the stock's price sat at 140 times expected 2017 earnings and 356 times trailing earnings. That can only indicate the fact that investors have a strong belief in Netflix's future earning potential.

This interesting market conjuncture for the company can be explained in part by Netflix's rapid current growth. As the company comes closer to reaching a saturation point in the States, international expansion is key to the plans for the future. According to data released by the company, 47 percent of its subscribers are now outside the U.S.

Another reason Netflix's price-to-earnings ratio is so high is that, especially in comparison with other tech companies, its profits are pretty low. This is due in part to the fact that Netflix's growth strategy based on enormous amounts of original content and rapid international expansion is very costly.

Investors in company's stock bet on the fact that Netflix subscribers and company's revenues may start soon growing much faster than its programming costs. This could be a realistic bet, since the main competing streaming video services, such HBO Now, Hulu and Amazon Prime lack the share in the global media market that Netflix has.

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