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Netflix Will Repeat January’s Big Move After Q1 Earnings

Netflix (NASDAQ:NFLX) exploded after strong earnings in January, squeezing out the shorts and tacking on some 70% in just a few days.

That meteoric run gave NFLX the crown for best-performing S&P stock in the first quarter, and the gains have stuck as we approach the next earnings date for Netflix.

The company reports earnings again on Monday, April 22, after the bell. So what can investors expect this time around? Probably another big-time beat, and another big-time move in Netflix stock.

Here’s why:

Profitability: NFLX surged in January because it posted an unexpected Q4 profit thanks to an influx of 2 million U.S. subscribers and another 1.8 million folks added internationally. The company had been investing big-time in content — from deals like a partnership with Disney (NYSE:DIS) to original programming like House of Cards starring Kevin Spacey — as well as growth into foreign markets including Latin America, the U.K. and Nordic countries. The fact that Netflix is spending big but still growing fast enough to get in the black shows the long-term plans are not completely erasing short-term profits.

Growth: All told, Netflix now has more than 33 million streaming customers worldwide, including 27.1 million in the U.S. Netflix CEO Reed Hastings believes the company will eventually have 60 million to 90 million U.S. subscribers. Reaching those numbers will take a while, obviously. NFLX has grown about 35% in two years, from roughly 20 million customers to end 2010, so you’re looking at 2018 or 2019 … but it’s certainly doable.

Sentiment: There was a spate of positive reviews by analysts in January after the blowout earnings report and stock spike. But optimism has been high in recent weeks in anticipation of Q1 2013 earnings, too. BTIG Research initiated coverage at “buy” for NFLX stock with a $250 price target, and Cantor Fitzgerald and Barclays both separately bumped up their targets as well. Short interest also has declined considerably, from almost 20% of the float in Netflix stock to start the year to less than 15% currently.

Yes, Amazon (NASDAQ:AMZN) Prime and Hulu Plus are alternatives. And yes, cable companies like Time Warner Cable (NYSE:TWC) and Verizon (NYSE:VZ) are trying to keep subscribers by offering more streaming and on-demand content. But those are long-term challenges and the future is very murky on who — if anyone — is going to give NFLX a run for its money.

Besides, don’t forget that the streaming video marketplace is booming — so there is plenty of room for a second or even a third alternative to Netflix without cannibalizing the growth prospects at NFLX.

There is a concern that Netflix is overbought on a valuation basis, with a forward price-to-earnings of almost 60 based on FY2014 earnings, but, like Amazon, this company has always boasted a historically high P/E ratio, and that hasn’t managed to hold it back.

We might not see the same fireworks we saw last quarter, and there certainly is a chance for trouble. But considering the recent headlines, things are looking up for Netflix heading into that April 22 report.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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