Shares of Netflix soared by over 20% Thursday after the company reported upbeat quarterly numbers the day before and investors appear to be newly enamored despite significant challenges ahead that CEO and founder Reed Hastings acknowledged, including increased competition from Amazon.
The stock was trading up 22%, or $20 a share, at $116 in heavy volume. While Netflix is not likely to see anytime soon the $300-plus level the stock attained at its height, it has recovered significant ground from a 52-week low of $62 at the end of November.
Analysts at Citigroup, Barclays and JPMorgan Securities have raised their price targets for Netflix. Subscriber growth in the fourth quarter restored confidence in a renewed upward trajectory after stumbles in 2011’s third quarter led to a subscriber dip for the first time in the company’s history.
But the reaction to strategic flubs that angered customers may have been overplayed, just as the shares were likely overvalued at their previous sky-high level.
Netflix said it increased its domestic subscriber count by 610,000 in the fourth quarter. Revenue for the period surged 47% to $876 million. The company ended the year with 21.67 million domestic subs.
Looking ahead, Hastings noted the pending loss of Disney films that were part of Netflix’s deal with Starz that expired last year. Also, the exclusivity period of a five-year deal with Epix ends this fall, meaning those films could be licensed to competitors as well. But he said Netflix is flush with other content deals and will pursue new ones, although it may dial back spending a bit in coming quarters compared with its huge fourth-quarter outlay, which doubled from the year before.