With its shares on rebound, Netflix is the cautious comeback kid

It might be safe to call Netflix the comeback kid — at least this week. The Los Gatos company’s shares are up 31 percent to about $214.25 as of this post, from last Friday’s closing price of $163.37. Tuesday, shares of Netflix jumped 24 percent to their highest level since fall 2011 after the entertainment company reported that it gained more than 2 million new subscribers in the first quarter.

Netflix’s bet on original programming, with titles such as “House of Cards,” appears to be paying off. This week, in an extensive mission statement called “Long-Term View” it published on its website, the company said there will be more original content to come. It says it now spends more than $2 billion a year on license deals and creating original shows.

Did you know Netflix, which we’ve always described as an entertainment provider, was an app? That’s what it called itself in its long-term view:

In addition to creating opportunity for linear networks, the emergence of Internet TV also enables new apps like Netflix, YouTube, MLB.tv, and iTunes to build large-scale direct-to-consumer services that are independent of the traditional MVPD [multichannel video programming distributors, such as cable companies] bundle.

And in case anybody wasn’t yet clear on the concept, the company also identified HBO as its main competitor, even though it was almost deferential about it:

The network that we think likely to be our biggest long-term competitor-for-content is HBO.  They recently won, for example, long-term exclusive domestic movie output deals with Universal and Fox. … While we are passing HBO in domestic members in 2013, it will be several years before we are peers with them in terms of Original programming, Emmy awards, and international members. It wouldn’t be surprising to us if HBO does their best work and achieves their highest growth over the next decade, spurred on by the Netflix competition and the Internet TV opportunity.

As for the significance of Netflix’s stock reaching over $200, its highest level since 2011, that was the year that included the summer of discontent and what one analyst called a “nuclear winter,” and the company’s gradual climb back. It was when Netflix CEO Reed Hastings thought the world was ready for a streaming-only service, created a separate DVD division, and raised prices for a group of subscribers. He looked back on the miscalculation, which among other things raised talk of a possible sale of the company, this week, telling the New York Times that he screwed up, something he has admitted before:

The hardest part was my own sense of guilt. I love the company. I worked really hard to make it successful, and I screwed up. The public shame didn’t bother me. It was the private shame of having made a big mistake and hurt people’s real love for Netflix that felt awful.

But Hastings is under no illusions about the fickle nature of investors and the many changes and challenges that his company continues to face. “We’re not really out of the woods. We’re growing and we’re making good progress, but we’re still not fully back to where we were,” he told the NYT.


Photo by Bloomberg


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