Those also using put options could have cleared 10X. This model requires updating for , and returns will not be as large. Un-grandfathering is over, and the impact of account-sharing is diminishing. Nevertheless, the strong success of Netflix's download feature means the stock remains a buy for those willing to hold through some dips over a 2- to 3-year time horizon. In the year and a half or so I have been writing on Seeking Alpha, my two best recommendations have come on Netflix NASDAQ: NFLX stock and Sprint NYSE: However, Netflix is approaching a year of transition, and the dynamics I used to derive accurate buy recommendations may no longer hold for Netflix.

Concerns also remain about increasing competition from Hulu, Amazon NASDAQ: T and Alphabet GOOG , GOOGL among others.

While I remain bullish on the stock, my reasons for this are changing, and gains may be less robust going forward. My run of good fortune started in July when I said Netflix would fall following its second-quarter earnings report, owing to subscriber adds I had calculated would come in far below projections.

I also said it would return to its original position in the following months afterward. I once again took the contrarian position on that day, arguing for a upside surprise and a resulting bounce in the stock.

Should I Buy Netflix Stock? 3 Pros, 3 Cons (NFLX) | InvestorPlace

If someone also purchased short-dated put options before the initial drop they could have achieved a return as high as 10X or even more their initial investment. I based these conclusions on the presence of two new forces in Netflix subscriber patterns that had far more influence over the results than they did over any previous ones. The first was account-sharing, which has always existed but was given new force by Netflix pricing changes that greatly increased the benefits of sharing accounts.

The second was the sequential and amorphous nature of those very same price changes, which produced something Netflix management had never had before: I must now refresh my Netflix outlook in light of the fourth quarter results. My successful projections did not reverse in the fourth-quarter, but it's clear that the things allowing me to make them are ending.

First, I really was less accurate in my calls. But I also said that I thought it would be a close call, as Netflix did leave some confusion about whether or not un-grandfathering would actually end at the end of the year. If it did it would lose its ability to defer hikes and retain subscribers, and with 4Q being the biggest un-grandfathering quarter of them all that could potentially create risk.

Nevertheless, I projected a subscriber beat and a hold to rise in the stock. My qualifications and concerns proved wholly unfounded. Netflix absolutely smashed my and everyone else's expectations, with over 7 million net adds.

The company beat strongly on both domestic and international subscribers. I do not believe this makes my model inaccurate, just a little dated. I stand by my research in the last article supporting the assertion that Netflix management, which I believe surprised even itself with its incredible beat, was laying the groundwork for another deferral of price hikes and massaging of subscriber levels, if it proved necessary.

Obviously, by the time I wrote my article, they knew it wasn't necessary. And whether readers believe I was right or wrong about management-directed churn, it is now officially moot. With the end of the 4Q coming in so strong, management almost certainly got through all the un-grandfathering they had to do, since they knew even if it went poorly they had enough subscriber adds to meet or beat expectations. This means that management-assisted churn reduction, which was pivotal to my analysis last year, will not be a factor going forward.

I believe account sharing will continue to be a factor, as it was before And it will remain a somewhat under-appreciated factor, since the price hike to the two-stream plan is still unaccompanied by any corresponding increase in the price of the four-stream plan, making account-sharing more profitable than ever for subscribers. Nevertheless, with this dynamic already in place for three earnings reports the company will soon begin lapping its new pricing scheme in the earnings.

Since most account-sharing is front-loaded anyway, the potential for substantial downside surprise from account sharing is certainly much reduced. Altogether, Netflix should be settling back down to a more normal for Netflix, anyway pattern of results after a wild ride.

However, Netflix's new normal may still be more bullish than the old normal was. While prices have risen for consumers and Netflix content spending remains robust, compressing returns and margins, Netflix made a big breakthrough last quarter in subscriber levels. More so than I had anticipated. If my model is not wrong, and account-sharing and un-grandfathering did what I think they did, how did they overshoot my projection?

I believe the outsized beat was owing to Netflix's decision to abandon years of opposition to the addition of a download feature. I have talked about downloads and their appeal to consumers for years.

I won't rehash that whole argument here. But let me just point out how rapid the response to downloads was.

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Early market reaction to the announcement was certainly positive. More importantly, consumers also responded, with Netflix rising from seventh to first on the Apple App Store in just a few days after the announcement. Customers definitely wanted the app a lot more after they found out they could download with it. My reaction was positive as well.

I called it a "substantial positive" for Netflix that investors "should welcome" though I noted at the time an absence of Amazon Fire compatibility that I thought could be disappointing to users and diminish the punch of the announcement. Most of the questions I raised at that time have since been answered in the positive. Netflix has indeed expanded downloads to Fire devices, suggesting the delay was probably technical and not a negotiating tactic or competitive push.

Downloads do not count against the stream limit, just as they don't for Amazon or Starz.

And the cap is set high enough at titles that few customers will likely be inconvenienced by it. Netflix does not breakdown subscriber adds by month and no reliable polling has yet been done to determine the precise impact on consumer behavior. But what we see certainly corresponds to a subscriber boost from downloads. I was somewhat surprised that downloads did not receive more attention during Netflix's fourth-quarter earnings conference call. Little attention was paid to them by the analysts and management did not go out of their way to shed any light.

I believe, however, that they were the pivotal factor in Netflix beating their projections so handily.

Netflix Will Be Very Different Than Netflix , But The Stock Is Still A Buy And Hold - Netflix, Inc. (NASDAQ:NFLX) | Seeking Alpha

I see Netflix as a stock with further upside potential, despite increasing competition. However the wild swings in growth should subside somewhat now, replaced by a steadier climb as downloads drive interest higher and a completed un-grandfathering process diminishes quarterly variability. While I think the trend is clear, quarterly results remain a somewhat more risky thing to project accurately.

The company projected 5. Downloads will probably help more on the international front than the domestic front, since as I explained their greatest value is to those in countries with poor to limited broadband.

I would only caution that Netflix will not offer the same outsized returns for investors as it did in , since timing of earnings beats and subscriber shortfalls will now become much harder without price deferrals to count on.

Investors who buy Netflix now should do so not to sell it next week, as I suggested they do last year, but to hold it for a year time horizon as Netflix continues to gradually remake how we consume TV entertainment. This is now a stock to invest in, it is no longer a stock to trade in.

I foresee continued outsized performance on the international front and steady but slowing growth on the domestic front, where downloads will have less impact and account sharing may continue to depress revenue figures, though to a lesser extent than before. Variability will remain, and be harder to predict. Netflix will be a steadier but still strong performer going forward. Downloads will replace churn-reducing price deferrals as the primary engine of underestimated growth, which reduces potential for short-term swings that investors can play for quick returns.

Some shortfalls will be inevitable in one or two quarters, reinforcing its status as a buy and hold stock. Nevertheless, the stock remains compelling for those willing to adopt a 2- to 3-year time horizon for their investments. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha.

I have no business relationship with any company whose stock is mentioned in this article. Long Ideas Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks.

Netflix Will Be Very Different Than Netflix , But The Stock Is Still A Buy And Hold Apr. A Strong Run My run of good fortune started in July when I said Netflix would fall following its second-quarter earnings report, owing to subscriber adds I had calculated would come in far below projections. Want to share your opinion on this article? Disagree with this article?

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