Why Netflix Stock Jumped at the Open

Netflix (NASDAQ: NFLX) generated solid quarterly results, confirming the company's place at the top of the highly competitive streaming industry.

Investors largely cheered the results, sending Netflix shares up as much as 5.6% in Friday morning trading, though the stock gave up those gains in the hours that followed.

A standout in a crowded field

Netflix earned $4.88 per share on revenue of $9.56 billion in the second quarter, topping Wall Street's consensus estimate for $4.74 in earnings on sales of $9.53 billion. The standout number was the 8.05 million boost to the number of subscribers, which is nearly double the growth that analysts had expected.

The company's new advertising-supported tier accounted for about half of all new sign-ups in markets where it is available. Netflix said it is closing in on the critical mass needed to attract major sponsors to its platform.

The streaming business saw blockbuster growth during the pandemic, when users had few options other than to stay at home and watch shows, but in recent quarters results have led to questions about whether that momentum can be sustained. Netflix rivals including Walt Disney and Comcast are increasingly turning to bundling to fuel growth.

Netflix said it intends to continue to go it alone.

"We haven't bundled Netflix solely with other streamers ... because Netflix already operates as a go-to destination for entertainment thanks to the breadth and variety of our slate and superior product experience," company management wrote in a letter to shareholders. "This has driven industry leading penetration, engagement and retention for us, which limits the benefit to Netflix of bundling directly with other streamers."

Is Netflix a buy?

Netflix shares were unable to sustain the early gains, pressured downward on a tough day overall for equities. Guidance left a little to be desired. Netflix said it expects third-quarter revenue of about $9.73 billion, about $100 million shy of consensus, and said the rate of new sign-ups was likely to fall. Once-new initiatives like a crackdown on password sharing are beginning to age, and their impact on results are likely to fade in the quarters to come.

But even if growth numbers slow, Netflix has established itself as the dominant player in the streaming business. This quarter should help build investor confidence that Netflix can provide a steady stream of happy endings in the years to come.

Lou Whiteman has positions in Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy .