Wednesday morning brought renewed enthusiasm to Wall Street, as market participants focused on positive earnings releases and other encouraging news from the stock market. Investors also seemed to settle down after concerns about the emergence of a deadly virus in China. As of 11 a.m. EST, the Dow Jones Industrial Average (DJINDICES:^DJI) was up 90 points to 29,286. The S&P 500 (SNPINDEX:^GSPC) gained 13 points to 3,334, and the Nasdaq Composite (NASDAQINDEX:^IXIC) climbed 60 points to 9,431.
Although earnings season has been generally favorable, not every company has gotten a positive response from investors, and Netflix (NASDAQ:NFLX) saw its stock lose ground Wednesday morning after releasing its report late Tuesday. Meanwhile, Virgin Galactic Holdings (NYSE:SPCE) has seen its newly issued stock soar recently, and many believe that the space-tourism business could have a lot further to go.
Netflix stock slips a little lower
Shares of Netflix were down 1% following the release of its fourth-quarter financial report. The stock had initially risen slightly in after-hours trading Tuesday night after the news came out, but investors seem to be a bit more ambivalent about the results today.
Image source: Netflix.
By most accounts, Netflix’s raw numbers looked solid. Revenue jumped 31% from the year-ago period, and paid memberships were 21% higher year over year. Average revenue per user rose 9% despite the company facing currency headwinds in its international business, and net new additions of 8.76 million subscribers brought Netflix’s total count to more than 167 million.
Yet some investors weren’t pleased to see domestic subscription growth fall short of expectations. Netflix only managed to bring on 420,000 new subscribers, which was less than its 600,000 guidance. Even though international growth topped forecasts by more than 1.3 million subscribers, shareholders still wanted to see more.
Worries about competition aren’t going to go away soon, but Netflix has thus far stood up to a difficult period well. With signs that negative free cash flow levels are likely to improve gradually over time, those looking at Netflix can still expect good things to come from the streaming giant.
Virgin Galactic shares head for orbit
Meanwhile, shares of Virgin Galactic Holdings rose another 10%. The space-tourism company has seen its stock climb almost 70% in just the past two weeks as investors get more comfortable with the idea that putting money into the company founded by Richard Branson is a good long-term bet.
From a fundamental perspective, there’s little to say about Virgin Galactic right now. It has minimal revenue along with significant expenses, reflecting the work that the company is doing preparing to serve a consumer audience with travel into space. Research and development costs in particular have exceeded a $100 million per year pace throughout 2018 and 2019.
Yet some see Virgin Galactic as having the same binary prospects as a small pharma or biotech stock. Just as companies in healthcare can soar or plunge if a candidate drug succeeds or fails, Virgin Galactic might also rise or fall depending on whether it can safely deliver travelers into orbit.
Big stock moves over short periods of time have a way of turning into volatility in both directions, so jumping into Virgin Galactic now promises a bumpy ride. But even after large gains, it’s not impossible that future success could make the small-cap stock a smart investment.