Netflix Reports an Excellent 3rd Quarter and the Shares Jump

October 24, 2006 at 11:06 am  ·  Category: Stocks

Netflix reported an excellent quarter after the close yesterday (Monday October 23, 2006) and the shares are popping today – up $4.12 to $27.35 with 8.7 million shares trading hands, according to Money Central (1:48pm EST, quotes 15 min delayed). 

If you recall, we initiated our position in Netflix three months ago: “Did Netflix Deserve to Lose $345 Million in Market Value Today?”  The answer was no.  Today, Wall Street has changed its mind and reversed course – the value of the company is up about $300 million. 

Netflix reported an excellent quarter, with free cash flow exceeding $26 million, but I think the real difference is just the market environment.  Back then stocks were down and everybody was worried.  Three months later they’re on a tear and everybody is bullish.  So they sell a pretty good quarter then and they buy an excellent quarter now. 

What did the quarter look like?  Revenues of $256 million were up 48% from a year ago on 57.6% subscriber growth to 5.662 million.  Operating cash was up more than 230% to $79 million.  Free cash flow was up more than 350% to $26.5 million. 

Netflix is now up almost 50% since our initial recommendation.  However, with this excellent quarter I still think the shares trade at a discount to their fair value.  Like I said, they are trading at around $27 while I think they are worth $37.  So let’s hold.

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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