Netflix, Google Disprove the Cap Skeptics

Stock quotes in this article: 

NFLX

GOOGL

How many times have you heard the following words? "Company A, B or C is just too big to see a significant rise in its market capitalization." I have heard them more times than I care to remember, and every time I hear I hear those words from the pretend gurus/pundits, I think to myself, what a crock.

Last week, Netflix (NFLX) and Google (GOOGL) finally put paid to those meaningless words.

On Thursday, Netflix was up by more than $20 a share or an 18% addition to its market capitalization, relatively small compared to the next example.

On Friday, GOOGL added almost $98 to its share price, tacking on $65 billion in market capitalization, a never-before-seen gain in terms of market capitalization. (Google is part of TheStreet's Action Alerts PLUS portfolio.)

Not even in the heady days of the Internet bubble did any company add so much value in a single day.

So you ask, "What exactly did these companies do to see so much love from investors after they had reported their respective second-quarter earnings?" The answer is very, very simple actually, and to put it succinctly: Both companies gave investors solid reasons to buy the stock.

Starting with Netflix on Thursday, the reason for the unrestrained buying was the absolutely blowout subscriber additions the company reported. The company grew its subscriber base in the second quarter by 3.27 million, taking the global total to 65.6 million. In the same quarter last year, NFLX added 1.7 million subscribers. Even in the U.S. where virtually everyone was pontificating that subscriber growth was almost nonexistent as saturation points were close to being reached, NFLX added 900,000 subscribers vs. expectations of 600,000. In addition, for the current September quarter, NFLX forecast another estimate-beating 3.55 million subscriber additions. With that growth rate in subscribers, expenses getting tightened and more than 100 countries still to be rolled out for NFLX services (including the world's two most populous, India and China), the sky is actually the limit for the company, and investors can see that.

In the case of Google, the absolute reason to buy was the huge beat on earnings expectations the company reported. The Street estimates were for earnings of $6.71 per share, while GOOGL reported $6.99 per share, the first beat in what seems like eons. In addition, new CFO Ruth Porat also promised the company was looking at enhancing shareholder value through dividends, buybacks or a combination thereof. After almost two years of absolutely moribund share performance, the company finally seems ready to stand up and deliver.

It would not surprise me one bit if both these companies continue to move higher, and I remain positioned accordingly.

In summation, when a company stands up and delivers results that surpass even the wildest expectations and, even more importantly, provides investors absolutely irrefutable reasons to buy, then saying Company A, B or C is just too big to move the needle should be treated as what it is -- pure drivel.

Original Link
http://realmoney.thestreet.com/articles/07/20/2015/netflix-google-disprove-cap-skeptics