So what looks good right now?
Netflix (NFLX). The story is already well known to most Americans. The company is the world’s largest online movie rental service, with more than eight million subscribers. It has over 100,000 DVD titles, and a growing database of consumer preferences, so it knows what customers will like. It has a growing library of titles that can be watched instantly thanks to online streaming. This saves the company the expense of buying the DVD, the expense of handling it in the warehouse, and the expense of mailing it . . . both ways.
Furthermore, the company has partnered with numerous technology companies so that its streaming will be easily received on an increasing number of devices. (The company announced today that a million Xbox users have watched Netflix streaming video on their devices.) I’ve been a Netflix customer since April 2003, and I watched my first streaming video (on my computer) this week.
But here’s why the stock looks good today.
Remember how in the Great Depression people watched movies because they were an inexpensive form of escapism, often sitting in the theater through multiple films? (I don’t remember, but I read about it.) Well, a trip to the theater is no bargain today, but Netflix is! More and more people are staying home to watch movies and the proof is in Netflix’s numbers. In the past three quarters, revenue growth rates have actually accelerated from 7% to 11% to 16% to 18%. Earnings growth rates have accelerated from 36% to 38% to 58%.
And the chart is strong; it climbed from 18 in October to 30 in mid-January, paused to build a base there for a couple weeks, and then soared to 37 on the heels of a super earnings report.
I don’t recommend buying NFLX here; I think it’s a little overextended, short-term. But I recommend that you keep an eye on it, and try to pick up a little if it pulls back to 34 in calm fashion and builds a healthy base.