Netflix Inc. has a tough task when it reports fourth-quarter results on Jan. 17, after the market close — satisfy investor expectations that are running high, and accelerating.
When the streaming video giant faced a similar task, it failed. But there’s reason to believe this time will be different.
Netflix’s stock NFLX, +0.46%[1] has rocketed[2] 51% since closing at an 11-month low of $233.88 on Dec. 24, and 4.1% since Friday. This week’s rally comes after Netflix raised on Tuesday the price of its subscription service by 13% to 18%[3], the biggest ever increase.
Also helping fuel the recent optimism was the December release of the movie “Bird Box,” starring Sandra Bullock, which was viewed by a record 45 million subscribers[4] in the first week.
Don’t miss: Netflix to idiots: Don’t hurt yourself doing the ‘Bird Box’ challenge[5].
Stifel Nicolaus analyst Scott Devitt said Tuesday the subscription price hike could lead to “cautious” guidance[6] for the first quarter, but said he was “bullish” on the company’s ability to execute the pricing increase.
And on Friday, Raymond James analyst Justin Patterson upgraded Netflix to strong buy[7] from outperform on Friday, saying the company’s content investments[8] and film strategy are “paving the way to material profitability.” He boosted his stock price target to $450 from $435.
The last time investors were so optimistic ahead of results was July 2018. The stock had run up over 40% in three months to a record high just prior to the earnings release.
As investors’ expectations were at their highest, UBS had downgraded Netflix[9] to neutral from buy. Analyst Eric Sheridan said the long-term growth potential was already reflected in the stock price, but the risks associated with competition and free cash flow burn were not.
He was right to temper enthusiasm, as a week later, Netflix beat profit expectations but missed on revenue and on all-important subscriber additions, to send the stock tumbling. Read more about Netflix’s Q2 earnings[10].
See related: Is Netflix stock falling down a mountain, or just tripping over a molehill[11]?
Also read: Netflix’s junk bonds were also hammered by its weaker-than-expected numbers[12].
Then, a week before third-quarter results, Sheridan said his research suggested domestic subscriber additions were likely to beat expectations, but the stock’s risk-reward profile suggested it was still too early to buy.
He was right again. The stock surged on Oct. 17 after Netflix beat subscriber numbers[13] by a wide margin, but the downtrend resumed the very next day.
The good news is, a...