Image source: Netflix.
Continue Reading Below
It didn't come as much of a surprise thatNetflix (NASDAQ: NFLX)delivered stellar financial results after Wednesday's market close. I couldn't be the only one whosaw it coming. The real surprise is that the stock went on to hit new highs following the report, given that Netflix shares had soared 55% since the day after posting second-quarter results six months ago.
Netflix was able to cross the divide that separates a good report from a great one. The stock moved sharply higher in after-hours trading yesterday. Let's delve into a few of the reasons why investors are being rewarded for their patience.
1. Netflix is as popular as ever
Netflix closed out the year with 93.8 million streaming subscribers worldwide, well ahead of its earlier guidance. It closed out the quarter with 7.05 million more accounts than it had when the quarter began and 19 million more than it had when the year began.
There may be worthy competitors out there, but no one likely gained 19 million more accounts to a premium platform. In short, Netflix keeps padding its lead.
Continue Reading Below
2.Netflix should top 100 million streaming subs by April
The dot-com darling offered up encouraging guidance. It now expects to close out the current quarter with 99 million streaming subscribers.
Netlfix has surpassed its subscriber target by at least a million in back-to-back quarters. If it can stretch that streak to three periods, it will mean that Netflix tops 100 million accounts by the end of March. That may seem ambitious, but its tendency to lowball its performance makes it more than likely to happen, given recent trends. If that scenario fails to pan out, Netflix should still be able to top the nine-figure milestone by April.
3. International subs should top domestic ones later this year
We're getting to the point where Netflix will have more overseas accounts than stateside users. Its domestic market has yet to hit its saturation point, but growth is slowing, with other countries picking up the slack.
Netflix is expected to top 50 million domestic streaming subs during the quarter for the first time, but its faster-growing international business should surpass 48 million. Netflix has gained roughly 3 million more international streaming subscribers than domestic ones in back-to-back quarters. If that trend continues, we could see Netflix's overseas accounts surpass the number of domestic subscribers during the second quarter. If it doesn't happen during the second quarter, it's all but certain to happen during the latter half of the year.
4. Folks are sticking around, making this scalable model tick
Netflix's stumble and tumble during the second quarter was based in part on news that longtime subscribers would start to pay the going rate of $9.99 a month, up from as little as $7.99 a month. There were retention fears at the time, and after the rough second quarter, it seemed as if Netflix's pricing elasticity had finally been stretched too far.
The second quarter proved to be the exception instead of the rule. Netflix gained 10.62 million net streaming accounts during the second half of the year, and given the scalable nature of the model, it's easy to see why a decent gain on the top line is translating into explosive growth on the bottom line.
5. Q1 will be even better
As good as the holiday quarter was, the new year's freshman quarter will be even better. It's not just Netflix's subscriber count that may hit nine digits: Netflix expects to top $100 million in earnings for the first time ever, according to data fromS&P Global Market Intelligence.
It may not last. Bumping the fifth season of House of Cardsto the second quarter will help improve margin during the first quarter, but this is still a company committed to investing $6 billion in content this year. The first quarter will feature a rare contribution profit for Netflix's international business, but the dot-com speedster expects to revert back to a contribution deficit overseas for the second quarter and all of 2017.Things my not stay perfect, but for now, Netflix is earning its all-time highs.
Find out why Netflix is one of the 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. (In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the market!*)
Tom and David just revealed their ten top stock picks for investors to buy right now. Netflix is on the list -- but there are nine others you may be overlooking.
*Stock Advisor returns as of January 4, 2017