After the market close today,January 19, Netflix (NFLX) reported that it had added 8.51 million subscribers in the fourth quarter. Wall Street was expecting an add of 6.03 million.
In after hours trading shares of Netflix gained 13.13%.
The quarterly results were especially notable because last quarter the company fell short of goth expectations, adding just 2.2 million new subscribers instead of the 3.3 million analysts were expecting.
The Netflix results have a significance beyond the company’s own shares. Big the stocks have been stuck over the past three months with the FAANG stocks plus Microsoft (MSFT), a group that accounts for a combined market cap of more than $7 trillion or roughly 22% of the total value of the Standard & Poor’s 500, according to Barron’s, gaining just 1.4% in that period. The S&P 500 in that time climbed 8%.
One of the reasons for the anemic performance of this big tech group has been a fear that revenue and earnings growth rates might be in decline.
These big tech stocks traded at 37 times earnings at the end of 2020. That’s a big jump from 25 times at the end of 2019.
So the challenge for big tech in this earnings season is to prove that it can deliver the growth to justify that multiple.
The numbers from Netflix today are likely to say “Yes, we can” to a lot of investors. I expect buying among big tech stocks tomorrow.
