NFLX Stock: Why Netflix, Inc. Stock Can Skyrocket; in 3 Charts

NFLX StockWhy Is NFLX Stock Down in 2016?

Oh, how the mighty have fallen. Netflix, Inc. (NASDAQ:NFLX), once a main driver of stock market returns, has lost the goodwill of investors. A few earnings misses were enough to sap the company of its momentum and drive NFLX stock below $100.00.

None of this has made me less bullish on Netflix stock. The company has hit a bump in the road, but it’s still on the same track as before. The only investors who sold off NFLX stock were short-term traders or newbie investors who panicked at the missed earnings.

What they didn’t realize was that business doesn’t often flow according to an earnings calendar. People are reluctant to change and Netflix represents a completely new way of doing things.

I remember the first time someone mentioned Netflix to me; I didn’t immediately rush out and sign up for their service. It took time but, a week after trying it, I was hooked.

It didn’t make sense why everyone else was wasting their time with traditional cable, so I told my family and friends all about this incredible new service. They all seemed as reluctant as I had felt originally. That taught me something valuable.

The prospect of on-demand television seems like a no-brainer to those of us who have already experienced it, but it takes a while for people to feel comfortable with change.

That’s why I didn’t panic at lower-than-expected international subscriber growth. It’s the kind of process that you should expect to unfold over the course of a year or two, not a quarter or two. Only novice investors are incapable of understanding such a simple idea.

But don’t just take my word for it; look at the data.

IHS Markit, a prominent data analytics firm, recently issued a research note saying that international Netflix subscribers will overtake domestic subscribers by 2018. (Source: “The Majority of Netflix Subscribers Will Be International Within 2 Years,” Fortune, August 23, 2016.)

They said that Netflix will have 75 million international users by 2020, adding $7.0 billion of revenue to the firm’s top line. By that time, domestic revenues should be approximately $6.2 billion per year, creating a massive tailwind for the stock.

I honestly wouldn’t be surprised to see NFLX stock surge to the low $200s as the international subscriber numbers start to climb. It wouldn’t be the first time that investors have unfairly panicked and fled Netflix stock only to return months later.

What do I mean? Take a look at these three charts.

3 Charts That Show Netflix Stock Can Rebound

In the middle of 2011, Netflix proposed a split between its legacy business of physical DVD rentals and its online streaming subscription service. People absolutely lost their minds over this suggestion, making it one of the costliest decisions in the firm’s history.

Netflix Inc NASDAQ Chart

Chart courtesy of Stockcharts

The market turned sour on Netflix stock just a year after it delivered triple-digit gains to the company’s shareholders. It was the beginning of a pattern that would repeat time and again. Look at the chart below to see what I mean.


Chart courtesy of Stockcharts

By 2013, investors eventually realized that they had overreacted to Netflix’s proposed split. The company was absolutely right in assuming that streaming was the future of their business, and now Netflix pointed to original programming as the driver for NFLX stock.

Hit shows like House of Cards garnered accolades by the dozens, causing resurgence in the price of Netflix stock. It rose 281% in 2013 before rising costs spooked investors. Instead of realizing that rising costs were a necessary condition in the short term, those investors simply fled, causing NFLX stock to dip in 2014.

But soon after, the market understood why Netflix was adamant about original programming. Competitors like “Hulu” and “Amazon Prime” started nipping at their heels, but customers were too tied to the original shows on Netflix to risk abandoning them.

As a result, here’s what happened to Netflix stock in 2015:

Netflix Inc NASDAQ Index

Chart courtesy of Stockcharts

But then the company started talking about rapid international expansion. It used phrases like, “you are witnessing the birth of a global TV network.” Investors simply didn’t know how to process that level of ambition, so they fled at the earliest sign that international growth wasn’t living up to expectations. It’s the same old story.

There was triple-digit growth in one year and barely any gains the next. History has shown that to be the rhythm of Netflix stock, and I think history is repeating itself.

The market is always one step behind the folks at Netflix. As the international subscribers trickle in, the market will realize that its panic was unwarranted, and will rush back to NFLX stock. There’s every chance that we’ll see Netflix stock with triple-digit gains in 2017.

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