Stream Yourself Some Cash, Invest in Netflix

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NEW YORK ( TheStreet) -- For all the criticism that Netflix (NFLX) has taken, the company deserves plenty of credit for having turned things around.

Granted, Netflix shares are still far from the $300 level they reached in 2011. But I'm kicking myself for having missed the bottom at $52. And after watching the first few episodes of its original series House of Cards , this weekend, there are signs that more gains are on the way.

Popular bear arguments against Netflix include its rising costs and the company's ill-timed price hike, which alienated subscribers and led to 1 million customer cancellations in the quarter following the hike. This allowed Amazon's (AMZN) Prime streaming service to gain notoriety.

More recently, however, a new Netflix has emerged. It has been one good decision after another, and these decisions have been bearing fruit as the company's fourth-quarter earnings report attests.

Ahead of the report, the Street was expecting a loss of 13 cents on $935 million in revenue.


But Netflix stunned investors by reporting a profit of 13 cents a share on revenue of $945 million. In the year-earlier quarter, the company reported EPS of 64 cents.

As impressive as this was, the most noteworthy aspect was the company's incredible cost management, including a 12% decline in general administrative expenses.

Marketing expenses grew slightly, by 2.7%, and technology costs were up 1.7%. As noted, expenses have been a huge point of contention for bears, especially because profits dropped 90% in the third quarter due to heavy international expansion.

Plus with competition on its heels, Netflix has had to spend to maintain its lead. Besides, nobody seems to complain that Amazon posted a loss of $274 million in the same quarter. The good news, though, is that Netflix continues to grow subscribers at an impressive rate, adding more than 2 million domestic streaming subscribers plus 1.81 million international ones.

The company is growing subscribers while also improving margins -- across each reporting segment. This means that profitability will continue to improve despite the concerns about content costs. In that regard, Netflix may not have much to worry about for long -- not if the company continues to produce solid hits such as House of Cards .


As I was watching, I had forgotten that I was on Netflix and not HBO or Showtime. In the long term, if Netflix is able to produce such original hits, this will benefit investors and lessen Netflix's dependency on outside content, many of which takes a meaningful chuck of its profits.

In other words, House of Cards just might have been the foundation for a mansion. And this has not gone unnoticed from rivals. For instance, according to CBSnews.com, Apple (AAPL) , which has its own streaming ambitions, is reportedly in talks with HBO to bring HBOGo to Apple TV. But will this be enough?