4 Reasons Netflix Stock is Surging to All-Time Highs

Netflix logo on the wall over a reception desk at its Los Gatos office.

Streaming pioneer Netflix, Inc. (NASDAQ: NFLX) has been on fire recently. The stock had already gained an astonishing 50% so far this year, driven by stellar results in its most recent quarter. Revenue grew by 33% year over year to $3.3 billion, while net income nearly tripled to $186 million, up from just $67 million in the prior-year quarter. Subscription growth was notable as well, increasing 25% year over year and topping 117 million accounts.

While the company already had plenty going for it, several recent catalysts have driven shares of the streaming leader to new all-time highs.

The Oscar goes to...

Netflix won its first ever Academy Award for a feature-length film. Icarus , a movie that uncovered Russia's state-sponsored blood-doping program for amateur athletes, took the top prize for best documentary feature. Netflix has long courted the recognition afforded by such accolades as a way to validate the quality of its content.

The awards and the publicity surrounding them is essentially free advertising for Netflix and its growing library of original programs. Two-thirds of U.S. households pay for streaming, and exclusive and original content has been the primary driver for new subscribers to these platforms, according to the Magid Media Futures study. Netflix plans to spend between $7.5 billion and $8 billion on content in the coming year.

A Sky-high deal

Late last week, the company revealed that it has reached an agreement with Sky, Europe's biggest cable TV operator, which would make Netflix available to Sky's 22 million customers. The first-of-its-kind partnership would integrate the Netflix app with the Sky Q platform, and begin rolling out in the UK and Ireland in the coming year, followed by Germany, Austria, and Italy. Customers will see content from the two provider's side-by-side, in "a brand-new and attractively priced entertainment TV pack."

With more than 50% penetration in its original U.S. market, the bulk of Netflix's future growth will come from its burgeoning international markets. Deals such as these will likely accelerate Netflix's adoption in foreign markets.

Analyst upgrades

Even though Netflix stock is up more than 60% so far this this year, analysts from two Wall Street firms believe it could continue to climb.

In a note to clients, investment bank UBS said it sees additional upside for Netflix due to low churn and its push into more original content. "Increasingly building out its global production muscle and focusing on content that travels internationally, Netflix has emerged as a content powerhouse that is actively building a global moat," according to UBS analyst Eric Sheridan. He noted that the second season of Netflix original Stranger Things generated greater search interest than every season of HBO's hit series Game of Thrones . He sees these factors driving increasing international adoption, with further opportunities from increasing penetration in global broadband.

Tim Nollen, an analyst for Macquarie Group, noted that "Netflix seems to have every secular trend in its favor," citing subscriber growth, pricing power, and improving financial metrics. He went to say that the increasing adoption of 4K Ultra HD TV's could benefit the streaming provider, as the replacement cycle for older televisions ushers in more opportunities for consumers to upgrade to the higher priced HD-friendly plan.

Parental controls

With the pending arrival of The Walt Disney Company 's (NYSE: DIS) streaming platform in 2019, investors have wondered if Netflix might see the greatest challenge yet to its streaming dominance. Seemingly in preparation for its debut, Netflix has rolled out an enhanced version of its already rigorous set of parental controls.

The company, which offers a wide variety of content for every taste, had already introduced the ability for parents to set PIN codes for content that might be inappropriate for a given age or maturity level. Netflix is now expanding those options to individual programs or series as well. The company will also provide greater insight into its programming, supplying specific guidance as to what precipitated a specific rating, such as language, sexual content, or adult humor. Those insights will appear in the upper left-hand corner of the screen when a program begins.

Adding fuel to the fire

This all comes on the heels of one of the best quarters ever for the streaming giant. Netflix added 8.3 million subscriber in the fourth quarter of 2017, the highest in the company's history, and up 18% year over year compared to the prior year's record additions. This is all the more remarkable as Netflix only expected 6.3 million, saying that it was "due primarily to stronger than expected acquisition fueled by our original content slate and the ongoing global adoption of internet entertainment."

Add these recent catalysts to its already fabulous results, and it's easy to see why Netflix is reaching dizzying heights.

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Danny Vena owns shares of Netflix and Walt Disney and has the following options: long January 2019 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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