Netflix Does the Unthinkable

Netflix Does the Unthinkable

It took more than two years, but Netflix has finally hit a fresh all-time high.

The leading video service barreled through its old high of $304.79 established two summers ago, when the market initially thought that Netflix's plan to charge separately for its streaming and DVD plans would be a goldmine.

It didn't play out that way. Consumers balked at what translated into a pricing increase of as much as 60%. The short-lived Qwikster fiasco a few weeks later was the icing on the cake. Then came the quarter of subscriber defections, and the shocking reality that average revenue per subscriber was actually heading lower. Folks weren't paying for both plans. They were nixing their higher-priced DVD plans in favor of just the $7.99 a month streaming service.

The stock bottomed out at $52.81 last summer, and dreams of Netflix revisiting its earlier highs seemed insane. It could have happened, but it would have realistically taken years, if not a decade, for the nearly sixfold advance necessary to get the stock back above $300.

Well, it took just a little more than a year.

Yesterday's rally was triggered, in part, by Liberty Global's Virgin Media offering Netflix in its set-top box in the United Kingdom. This is the first cable provider to directly offer Netflix.

This has been a dream of Netflix CEO Reed Hastings for more than a year. He was talking up the prospects of being bundled into cable packages the same way as premium movie channels HBO and Showtime are.

Netflix doesn't necessarily need this anymore. It now watches over nearly 38 million global streaming accounts. Having pay-TV companies on its side would make things easier, but it's not as if Netflix needs validation these days. Studios know that they need to go through Netflix if they want to reach a streaming and influential audience.

However, we also saw what overconfidence did to Netflix two years ago. Is a repeat performance in the cards? The shares certainly aren't cheap by most measuring sticks. It's unlikely to be another six-bagger by next summer.

It also doesn't help that many of the skeptics have cleared out of Dodge. The number of shares sold short have been cut by more than half over the past year. Short-squeeze rallies will be harder to come by, even though one can argue that the value of the total short positions has roughly tripled over the past year during the stock's sixfold advance.

This doesn't mean that the stock is heading lower. A breather would be perfectly natural, but it's not as if there's a disconnect between elated shareholders and frustrated subscribers the way things were two summers ago.

Wall Street and subscribers are loving Netflix these days, and that doesn't show any signs of easing.

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Longtime Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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