Wall Street buying into Netflix comeback narrative big-time

Shares of streaming video company soar nearly 26% after Q4 report shows subscriber growth

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It's not often that a company report a 13% decline in profit only to see shares gain more than 25%, but that's what's happening with Netflix on Thursday.

Shares got a sharp bump in extended trading Wednesday, climbing as high as 17% from the closing price to 111.00, but a good night's sleep made investors even more bullish, with shares of Netflix (NASDAQ: NFLX) soaring as high as 119.37, or 25.6% above Wednesday's close of 95.04.

(Also see: Netflix shares jump on Verizon acquisition rumor)

And that's because many traders believe, despite the drop in fourth-quarter earnings to 73 cents a share from 87 cents a share, Netflix has weathered the subscriber exodus triggered by last July's ill-advised 60% hike in rates and splitting of DVD and streaming video accounts. (No doubt the 47% increase in revenue to $876 million also helped sway traders.)

The numbers would seem to bear that out. Netflix on Wednesday reported that streaming subscriptions in the U.S. grew to 21.67 million members from 21.45 million in the third quarter.

Further, Netflix said domestic streaming net membership for the first quarter "are tracking close to our net additions in Q1 2010 of 1.7 million." The company projects total domestic streaming subscriptions of 22.8 million to 23.6 million in the current quarter.

Keep in mind that through last June 30, Netflix had 24.59 million domestic subscribers. This was when it offered one paid subscription that covered DVDs by mail and streaming. By the end of Q3, total domestic subscriptions had fallen to 23.79 million, including 21.45 million streaming-only subscribers.

So it does appear (for now) that the worst is over for Netflix, at least as far as Wall Street is concerned. Yes, it will continue to spend heavily to build subscriber bases in several international markets, but the U.S. market still accounts for more than 96% of Netflix's revenues. Until further notice, as the U.S. market goes, so goes Netflix.

If Netflix can reach the high end of its domestic streaming subscription guidance for Q1, it'll be just another good quarter away from fully recovering its domestic subscriber numbers.

Getting the company's stock back to its $300 pre-chaos days will be an altogether different challenge.

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