Netflix Shares Surged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of streaming-movie provider Netflix (NAS: NFLX) were getting a standing ovation from investors today, flying up as much as 25% in intraday trading after the company delivered stellar fourth-quarter results.

So what: What a ride it's been for Netflix shareholders. First, the company was the hottest thing since volcano lava. Then it tried to shake things up and split off its DVD business and suddenly the stock was colder than an Arctic glacier. Now, as the company once again is convincing the market that the growth story is far from dead, the shares have taken off.

This latest rocket-ship impersonation came as the company reported results from the fourth quarter that wowed Wall Street and Mr. Market alike. For the quarter, Netflix managed $0.73 in per-share earnings on $876 million in revenue. Analysts were expecting earnings per share to come in at just $0.55. Perhaps more important, the company said that it finished the quarter with more than 26 million total global subscribers, which suggests that the subscriber defections that many were concerned about may have simply been a blip. Domestic subscribers were up 25% from the fourth quarter of 2010 and up 2.5% from the third quarter of last year.

Now what: If there's any one truism about Netflix right now, it's that its stock is extremely volatile. Has the company fully addressed concerns about encroaching competition from Hulu and Amazon.com? That remains to be seen. Will the international push end up paying off? That, too, needs to be proven out. But however those -- and other -- big question marks work out, what we can count on is more sharp reactions from the stock.

The stock is far more rock-and-roll than duck-and-cover right now, but anyone adding this stock to his or her portfolio better be prepared for a wild ride.

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