Netflix Inc. (NFLX, Financial) had a healthy performance in 2016 as the stock was up about 9%. The stock has displayed strong signs of upward momentum heading into this year as it is up 23% year to date. Through the past 12 quarters, the streaming giant has effectively managed to grow its revenue at a robust rate and the same story continues this year as well.
Netflix reported better-than-expected first-quarter results on April 17. For the first quarter, the company shared earnings per share of 40 cents, exceeding the analysts' estimate by 3 cents. The company’s revenue came in at $2.64 billion, in line with the consensus. Most importantly, that figure signifies a whopping surge of almost 35% year over year.
The streaming giant’s operating income also surged to $257 million, up significantly from just $49 million a year ago. Moreover, the company’s net income came in at $178 million, representing a surge of 535% year over year.
On the other hand, the company added 1.42 million new subscribers in the U.S., less than the estimate of 1.56 million new additions. The company added 3.53 million new subscribers internationally, again missing the estimate of 3.71 million new additions.
It is worth noticing that despite coming up short of its first-quarter subscriber target on both the domestic and international fronts, the streaming giant managed to report impressive growth. Moreover, the company is on its way to growing its subscriber base to 100 million as it anticipates 3.2 million net additions for the approaching quarter.
As a matter of fact, “House of Cards” is one of the most popular shows produced by Netflix and is rated 9/10 on IMDB. The fifth season of “House of Cards” is scheduled to premiere on May 30. This might be the reason to constrain subscriber growth as the streaming giant premiered the previous seasons of “House of Cards” in the first quarter rather than the second quarter.
On the bright side, the delay was good for operating margin, which surged to 9.7% in the first quarter. However, operating margin is projected to plunge to 4.4% in the approaching quarter.
All in all, the primary reason behind Netflix’s amazing performance is its aggressive focus on producing original content which differentiates it from rivals like Amazon (AMZN, Financial). The streaming giant is well aware of the fact “content is king” and publicized that it plans to spend around $6 billion on content this year. Furthermore, it also plans to produce 1,000 hours of premium original content this year.
Summing up
Over the past few years, Netflix has managed to reward shareholders with healthy returns and will likely continue to do so in the future. Although the streaming giant’s domestic subscriber growth has slowed down considerably, it's still got legs. On the other side, its international subscriber growth continues, displaying positive results.
Moreover, the company is focusing on producing original content that will reap fruitful results in the years ahead.
As a result, I recommend shareholders continue holding the stock as its long-term prospects look good. However, shareholders looking to initiate a position in the stock should wait for a significant dip as it currently trades at its all-time highs.
Disclosure: No position in the stocks mentioned in this article.
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