The Buzz

All markets and investing news all the time

Stupid Stock Move of the Day! Netflix up more than 10%?

July 5, 2012: 3:35 PM ET

Netflix (NFLX) investors were "jazzed" (oh how I miss Colin Barr) about the fact that CEO Reed Hastings gushed, on Facebook (FB) of all places, about how subscribers watched more than 1 billion hours of video in June.

That post was Tuesday afternoon following the abbreviated day of trading before the 4th of July holiday. So the market didn't have a chance to react to this until today -- although shares surged Tuesday as well following a bullish report from Citigroup Internet analyst Mark Mahaney.

It wasn't that long ago that shares of Netflix were down year-to-date. They're now up nearly 20%. But they are still not doing as well as Redbox owner Coinstar (CSTR), which I wrote about last month.

Now don't get me wrong. I think Netflix, despite last year's price hike/Qwikster debacle, provides a great service. I am a subscriber. But what is this? 1998? We're back to buying stocks because of ridiculous user metrics that don't mean squat for profits? "Hours viewed" may be the new "eyeballs."

Netflix makes money from monthly subscriptions. It's not that relevant for investors how often people are online. It's not an ad-supported business where engagement matters. In that respect, Netflix is not that much different from pay cable networks like my corporate cousin HBO. This is, of course, amusing since my Big Boss --capo di tutti capi? -- Time Warner (TWX) CEO Jeff Bewkes has occasionally taken potshots at Netflix.

But the bottom line is this. Netflix may be back on track from a subscriber standpoint. Still, the gaudy number that matters more than 1 billion hours viewed is this one: 745. That is Netflix's price-to-earnings ratio based on its current price of about $82 and 2012 earnings per share estimates of just 11 cents.

Sure, I realize that profits are expected to be unusually low this year due to Netflix's big international push. Heck, the company was originally expected to lose money all year due to investments overseas. But even if you look at more normal earnings levels for 2013, the stock still has a P/E of near 40. That is too rich.

Nonetheless, disagreements are what makes the markets interesting. Several Twitter followers engaged in a fun debate about the merits of Netflix.

All great points. Call me old school though. It all comes to valuation. Earnings matter.

Posted in: ,
Join the Conversation
Fear & Greed
Sponsored by
About This Author
Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day! Yes, Urban Outfitters may be finally turnings things around. But $URBN up 17%? Seems a bit excessive, no?
Most Popular
Powered by VIP.