Netflix: A Feel-Good Story

Netflix looks increasingly well-positioned with its tried-and-true method of giving the public something of value at a price that it can (still) afford.
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SAN FRANCISCO -- We interrupt another broad market selloff for this word about a stock that has now doubled in less than four months.

Even better -- it's a name that you know, there's no need to scour the over-the-counter lists or dry shipping sector to find this recent top performer.

It's

Netflix

(NFLX) - Get Report

, a company that looks increasingly well-positioned with its tried-and-true method of giving the public something of value at a price that it can (still) afford.

Shares of the online video-rental firm were up $1, or 2.8%, to $37.17 on Thursday, after the company trumpeted that is has topped the 10 million-subscriber mark. What's more, it has done so by adding 600,000 net subscribers (taking into account those that have left the service), since the beginning of 2009.

Do you know many companies that have added 600,000 of anything in the past few months?

Consider that BlackBerry maker

Research In Motion

(NFLX) - Get Report

, which has revenue 7 times that of Netflix, said Wednesday it will add about 3.5 million subscribers in its current quarter. If you squint and call that 1.2 million additions a month, Netflix adding that half that amount in six-and-a-half weeks is eye-catching.

And Netflix isn't done growing: The company stood by its projection that it will end the first quarter with 10.1 million to 10.3 million subscribers and will have 10.6 million to 11.3 million subscribers by the end of the year.

The company made a bit of a buzz a couple of weeks ago when its fourth-quarter earnings beat analyst estimates, while the company offered a full-year forecast that didn't incite replications of

Edvard Munch artwork

.

But for Netflix, the quarter merely looks like a continuation of consistent growth that has been relatively untouched by the stinginess of suddenly nut-gathering consumers. Check out Netflix's last three quarters of year-over-year subscriber growth: 25%, 23% and 26%. Or, look at revenue growth for the last three quarters: 11%, 16%, 19%.

Is that recession-proof enough for you?

The company isn't taking any margin hits for revenue's sake, either. Gross margin the last three quarters has been 31.8%, 34.2%, and 35.2%, respectively.

On its conference call in January, the company did maintain that it doesn't fully know the extent of continued job losses and stagnant consumer spending in the U.S., but it also said that despite the economy, more people are trading up in subscription level than trading down.

This suggests that perhaps Netflix isn't just weathering the economic storm, but benefiting from it by offering a low-cost entertainment alternative for struggling consumers that are still paying off their 52-inch LCD televisions.

For those who have missed Netflix's recent run higher, however, the question has become whether the stock is too rich above $37. The company's trailing-12-month price-to-earnings ratio has now ballooned to 28, and several Wall Street analysts now consider the stock priced to perfection, saying they would be more comfortable getting a nibble at the mid-$20s level.

A big key for Netfix's performance in 2009 will be how well it incorporates its Internet movie-streaming operations into its traditional DVD-by-mail business. The company is bullish on its growth in the segment, but that's also where the competition lies -- likely from giants

Amazon

(AMZN) - Get Report

and

Apple

(AAPL) - Get Report

.

Netflix suggests streaming will push margins higher due to lower postage costs, but for now Wall Street seems a little doubtful on how well profit growth can move with subscriber additions, considering the company's investment in digital.

In the meantime, year-over-year revenue growth of almost 20% is certainty enough these days.