WebQuest: Why Did Netflix’s Stock Price Go Up When Their Earnings Went Down?

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Apr 17, 2015
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Behavioral Finance, Investing, WebQuest, Stocks, Current Events, Chart of the Week

Does this look like a company whose earnings dropped in the last quarter?

Screen Shot 2015-04-17 at 3.08.57 PM

I like this activity because it teaches students the importance of expectations and also how investors value companies using different metrics (clearly earnings don’t drive Netflix’s stock price).

The assignment is simple:

  1. Find 2-3 recent articles about Netflix stock that are related to their earnings announcement from this week.  If you are time constrained, here a few good articles:
    1. Bloomberg (with 3 minute video)
    2. Business Insider
    3. Reuters
    4. Reuters:  Here’s a contrarian view:  Netflix soaring valuation raises some doubts on Wall Street
  2. After reading the articles, identify three catalysts to explain why their stock price rose.  Why do investors love Netflix so much?
  3. Why do they think that investors are less concerned about Netflix’s earnings?
  4. Calculate the percentage change in their stock price from April 13-April 17th.  Here is the Yahoo Finance link to stock price on those dates.  It opened at $450.78 on 4/13 and closed on 4/17 at $571.55 (that’s almost 27% if you are scoring at home).
  5. Would they invest in Netflix now?  Why or why not?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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