A tremendous influx of streaming video subscribers helped send Netflix (NASDAQ:NFLX)'s stock price soaring on Oct. 18. Its 19-percent improvement that day, as compared to 24 hours earlier, was the entertainment company's most impressive daily showing since April 23, 2013; on that day, Netflix's stock price had increased 24 percent.
The company had announced quarterly earnings late on Oct. 17 that were significantly improved over what had been anticipated. It had expected 2.3 million new streaming video subscribers in the third quarter; Netflix instead received 3.6 million, of which 3.2 million were international subscribers and 400,000 were American customers. Subscriber growth is pivotal to Netflix's worth, as subscribers are much more apt to bring in continued revenue than other sources.
Quarterly sales also reached $2.3 billion, exceeding $2 billion for the initial time, and its profitability of 12 cents per share was double what analysts had expected.
Netflix believes that shows such as "Narcos" and "Stranger Things" played a significant role in those subscriber figures being so much higher than expected during that time period. The popular review aggregator, Rotten Tomatoes, rates both shows as exceeding 90-percent approval ratings. Continuing to un-grandfather subscribers who had been paying lower rates has helped increase revenue as well.
It expects to add 5.2 million customers in the fourth quarter, 3.8 million of which are expected to be internationally based. The company will be hoping that this growth continues at its already impressive rate as Netflix's stock price had been down 12 percent on the year at the close of business on Oct. 17, shortly before its third-quarter earnings were announced, and its stock price quickly shot into the black on the year as a result.
However, not everybody believes that this trend will continue. Barton Crockett, a senior research analyst at FBR Capital Markets, said on CNBC,
They've had a great trajectory, but it's slowing, and a growth stock like this that isn't making much money … can be a dangerous company when it's starting to slow and transition from a growth story to something more mature.
Many analysts also note that the company's performance in the second quarter was disappointing, being short of what the company had predicted. A total of 1.7 million new subscribers were added, instead of the 2.5 million that had been anticipated, placing some doubt as to whether this current upward trend will continue.
Despite that, institutions like Highland Capital and its President James Dondero increased their positions during Q3. Highland increased its stake by 44% in September.
Others seem to have followed the trend, including a noteworthy insider buy by Director Jay Hoag in August 2016. Hoag bought 900,000 shares at the time at an average of about $89 per share. By all accounts, his investment has paid off.