Today’s stock market environment is marked by a What Have You Done For Me Lately? mentality, especially when it comes to a company’s performance. Following Wednesday’s closing bell, shares for Netflix Inc. (NASDAQ:NFLX) soared in after-hours trading moments after the online video streaming service provider announced its 4Q FY 2011 Earnings, which easily beat most analysts’ estimates.
Although the company reported 4Q 2011 Earnings Per Share of $0.73 – which is a $0.14 decrease from last year’s 4Q outcome, most investors and analysts had been preparing for much more catastrophic numbers in light of the stock’s plunge from its July 2011 all-time high of near $300 per share. IRA.com has reported a number of management missteps, beginning with the company losing millions of American subscribers over its basic subscription price hike and then subsequently cancelling plans to spin-off its DVD Rental business into a separate entity call Qwikster.
Netflix’s CEO, Reed Hastings, received a Significant Pay Cut for 2012 as well, but with Wednesday’s earnings report, the past management decisions may be quickly forgotten by investors if the online video streaming giant can move forward and continue to provide solid results from here on out. The company still expects to lose between $0.49 to $0.16 per share in the First Quarter of 2012, but many agree that the anticipated 1Q FY 2012 shortfall has already been priced-in by investors.
Subscriber Base Improving
Domestic subscriber numbers for Netflix Inc. increased by 1.7 million in the Fourth Quarter of 2011, meaning the company has either recovered a hefty portion of previously-lost subscribers or has found a way to entice new U.S. customers to sign-up due to its Exclusive Content Deal with DreamWorks and other service features. Netflix reported revenue of $876 million in 4Q FY 2011, which may still need to improve due to the company’s rising content costs which could reach as much as $2 billion for the 2012 calendar year.
NFLX Stock Performance
Netflix Inc. shares rose well over 20 percent Thursday compared to the stock’s January 25th closing price of $95.04. At 3:00pm Eastern Time, NFLX was trading at $115.60 per share (see chart below). Netflix has a market capitalization of $6.46 billion and a Price to Earnings ratio of 27.32 based on its most recent financial statement.
The manner in which Netflix responds to its past struggles will be key for the 2012 calendar year, which will be marked not only by enormous content costs, but also an increase in domestic competition. However, its recent entrance into the UK market and its established presence in Latin America could place Netflix in the pole position to become a well-known video streaming service to users worldwide.
Netflix’s DVD Rental business – which has caused the company headaches due to the $0.75 per disc U.S. shipping charge – may or may not be a viable option for Hastings and other executives to explore internationally. Parcel rates vary by country, but it is difficult to fathom how a DVD Rental service could become profitable unless Netflix is able to secure extremely cheap domestic shipping rates from distribution centers located within the target countries.
Netflix and Your IRA
If your IRA was tied to Netflix Inc. beginning in mid-2011, then you unfortunately took a substantial hit on your overall investment. Online Content Providers, especially those that specialize in video streaming, may require in-depth market analysis before deciding on whether they are the right fit for your investment portfolio.
If you would like to find out more about IRAs, read through our sections on the IRA Basics and IRA Rules to find answers to your questions. Once you’re ready to make retirement investing a reality, use the following links to Find an Advisor in your area and Open an IRA for as little as $1 in a matter on minutes.