Netflix Kicking Butt

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Netflix Kicking Butt

Netflix, Inc. (NFLX) continues to distinguish itself as an innovative company that knows how to grow its profits. The company’s recent fourth-quarter results were excellent and its share price is once again approaching its 52-week and all-time high.

Value Equals Growth
Netflix has held up well in a tough market because of the company’s value proposition and progressive distribution model. Subscriptions to Netflix, a home movie delivery service, range from $10 to $17 monthly. This allows subscribers to have as many as three DVD’s at one time, home delivered through the mail directly to the doorstep. With consumers pulling back on spending, this has become a very attractive alternative to the traditional “going to the movies,” which seems kind of pricey these days.

The company also continues to think progressively and leverage trends in technology. Its first core business model, a home delivery movie service, took a huge bite out of competitors like Blockbuster because it provided much valued convenience.

This was and is still a great model, but Netflix has its eye on the future. The company is aggressively developing its online distribution capacities in order to sidestep physical deliveries all together. This also provides a less expensive method of delivery, scoring more points for Netflix and enabling margin growth.

Fourth-Quarter Results
Netflix is fresh off the heels of another impressive quarter, reported in early February, that were ahead of expectations. Revenue was up 19% from last year to $359.6 million. Income came in at $22.7 million, a 45% jump from last year’s $15.7 million, producing earnings of 38 cents per share, 4 cents ahead of the Street.

This was the fourth time in the last four quarters that Netflix has surprised and beat estimates, having done so by an average of 2 cents, or 7%.

The company noted that its subscriber base grew to 9.39 million, a 20% build from the same period last year. Moving forward, Netflix expects to add at least 1.3 million users in 2009, forecasting full-year earnings between $1.43 and $1.59 per share. 

Valuations
Shares of NFLX are currently trading at $36, which means this stock has a forward P/E multiple of 22X. That is a little pricey compared to the overall market, but keep in mind, this is a company that is growing, which makes it unique in this environment. 

The Chart
Shares of NFLX have responded to the great quarter, recently gapping open higher and stabilizing in higher ground. The 52-week and all-time high is close at hand, just above $40. The stock could be a little over-extended in the short-term due to the optimism, but on a longer-term basis, it looks well positioned to keep growing. Take a look at the chart below.

NFLX 5-Year Chart

chart provided by eSignal
chart provided by eSignal
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