The Wild Ride Continues at Netflix, Inc. (NFLX)

$32 at the beginning of 2009. Almost $300 in July 2011. About $60 in mid November 2011, then up above $125, and below $54 at the end of July 2012. Now, six months after that date, the stock is above $140 after a quarterly report in which Netflix, Inc. (NASDAQ:NFLX) announced that it had made a profit for the quarter. Analysts had expected the company to report losses. In addition, Netflix added over 2 million U.S. video streaming subscribers, strengthening its recurring revenue model.

Billionaire Carl Icahn is likely a huge winner of the earnings beat. Icahn controlled 10% of Netflix’s shares as of a filing at the end of October 2012, and the recent increase in the stock price actually understates the percentage gain Icahn Capital has made; much of that position was in the form of call options, which in this case have acted as a highly leveraged purchase of shares. See more of Icahn’s stock picks. Billionaire Eddie Lampert’s ESL Investments had also initiated a position in Netflix during the third quarter, reporting a position of about 700,000 shares at the end of September (find Lampert’s favorite stocks).

Netflix’s revenues were up 8% in the fourth quarter of 2012 versus a year earlier, and rose 4% on a q/q basis. While gross margins have been swelling- earnings are still down considerably from their levels in 2011, with EPS for all of 2012 being lower than they were in the fourth quarter of the previous year- many of the fears about subscriber numbers seem to have been overblown. Netflix, Inc. also has considerable cash and short term investments.

Current expectations from Wall Street analysts are that Netflix, Inc. will earn 41 cents per share in 2013, though we’d imagine those estimates are going to be boosted in the coming weeks in light of the earnings beat; for example, consensus had been for a loss of 7 cents per share in the current quarter and our guess is that the company will actually end up being profitable. Forward estimates are for $1.44 per share in earnings, placing the forward P/E at about 100. Obviously the company would need to continue high earnings growth from that point; it would likely need to triple earnings for another year or so. As a result we’d hesitate to buy at this point.

How does Netflix compare to its peers?