Netflix Shares Surge As Investors Forget How Much They Hate It

$NFLX $GRPN $ZNGA $AMZN $AAPL  If there's one thing I've learned about the markets in the years since the dot com collapse in 2001, its that investors are suffering more and more from short-term memory loss.  Just a few years after losing 98% of their investments in countless failed Internet start-ups, investors were all too willing to jump right back into the fray with brand-new untested and unprofitable Internet IPOs like Groupon and Zynga. That's why this week's 30% surge in Netflix is so puzzling, have investors forgotten that the stock just fell from $129 to $53 a share? 

Netflix hasn't reported anything new about its business over the past few days, but it seems that the analyst community and the market at large decided on Sept 28th that $53 a share is where the bottom will be occurring. Since then, shares have been on a tear, up nearly 35% in a little over a week. Not to be left out of the party, an analyst at Morgan Stanley just today upgraded Netflix to "overweight," saying among other things that the company's U.S. subscriber base has stabilized and competition from Amazon.com's streaming offerings has been tepid at best.  The analyst also noted that Netflix appears to finally be reigning in its content costs. It would have been nice had Morgan Stanley gotten this analysis to investors last week, before the stock's monster move, but I digress.

Netflix has always been one of those hot-button names that can trade wildly on even the slightest of news. In the beginning of July, the stock soared from the mid-$60's to over $80 a share on the simple announcement that viewers had streamed over one billion hours of movies using the service. By the end of July however, shares had crashed into the mid 50's on the news the company would sacrifice profits in order to bolster some of its international expansion efforts. 

So here we are, just two months later, and once again its boom-time again at Netflix, at least we think it is, since the company of course hasn't announced anything.  

I love a good momentum stock as much as the next guy, but individual investors needs to steer clear of high-momentum, high-volatilty stocks like Netflix. While Morgan Stanley may think that Apple and Amazon don't pose a serious threat, the fact is, we just don't know that yet.  I mean, the latest generation of Amazon Kindles are just now getting into customers' hands. We also don't know the extent to which Netflix is, or isn't, paying too much for its content going forward. And we also still don't know if, or when, many of Netflix' new international markets will be adding to its bottom line, if they will at all.

Don't get me wrong, I still like the Netflix story longer term. Give them a few years to lock down more content deals and tack on a robust global economy and you can easily make a case that the company will be very profitable. But in the short-term, with a long, uncertain winter ahead of us and the stock already up a quick 30%, I think I've seen this picture before, and it doesn't end well for our hero.