3 Reasons Why Netflix Might Impress You This Afternoon

By Rick Munarriz Markets Fool.com

Image source: Netflix.

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It's the moment of truth for Netflix (NASDAQ: NFLX), as the top dog in premium video streaming gears up to report fresh quarterly results a few minutes after the market close. It's easy to be jittery if you're a shareholder. Netflix stock plunged 14% the day after posting disappointing second-quarter results. Those same shares soared 19% the day after deliveringbetter-than expectedthird-quarter results.

Volatility has clearly been on the menu, and with the stock hitting new all-time highs on Tuesday, it's easy to wonder if even another blowout quarter will be greeted by a sell-off. Netflix is a 40-bagger over the past decade, but it hasn't gone up in a single straight line. There's a sound argument to be made that investors that have been riding the rally -- the stock is trading 55% higher since the day after posting its Q2 bombshell six months ago -- will take some of their chips off the table no matter how solid the numbers may look.

Let's go over a few of the reasons why no matter which way the stock swings in after-hours trading tonight that the actual fundamentals are likely to be impressive.

1. The rate hike is now baked in across all members

When Netflix announced a rate hike in the springtime of 2014 -- going from $7.99 to $8.99 a month -- it did so by telling existing streaming accounts that they would be grandfathered in to the earlier rate for two years. The rate would go on to increase to $9.99 a month for Netflix's most popular streaming plan.

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Netflix didn't just turn on the switch when the two-year anniversary rolled around, though seemingly old news of the hike may have played a part in Netflix's rough second quarter. Netflix aimed to go through the process gradually, with most of the longtime subscribers experiencing the increase to $9.99 a month during the summer.

What does this have to do with the the last three months of financial performance? Well, the fourth quarter was the first time that most early subscribers were paying the new rate. This could result in some retention issues, but it should ultimately result in a favorable surprise when it comes to revenue.

2. There's less chance of a zigzag surprise

Few saw the second quarter's debacle coming. Netflix with its historically conservative guidance actually overestimated its subscriber targets. Rocked investors weren't very trusting when the third quarter rolled around, and that pessimism set the stage for the third quarter's blowout.

We expected good things in Q2 and got garbage. We expected garbage in Q3 and got good things. The market's holding out for a healthy report this time around, but the climate isn't the same as it was when the second-quarter stunner took place. The numbers should be good if not great. The market may not react favorably given the big run in the shares in recent months, but the actual fundamentals should be solid.

3. There's power in more than 90 million subscribers

Netflix's subscriber target in mid-October was for 91.94 million worldwide subscribers. It's a big number, especially since the dot-com darling can divide its content costs across a growing base of video buffs.

The target suggests that Netflix topped 90 million streaming accounts at some point in December. CEO Reed Hastings didn't brag about it on social media. He's been laying back when it comes to breaking news that way. However, it did happen, and even if the market's knee-jerk reaction will be to take some profits tomorrow, the psychological power of reaching an audience north of 90 million is massive. The media can play up all of the tech giants either winning original content awards or making a push to jump into this video smorgasbord niche, but Netflix itself is succeeding regardless of what's happening around the category that it dominates.

Let the stock swing tomorrow. As long as Netflix's fundamentals continue to improve, it will keep being a rewarding investment over the long haul.

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Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.