By Sam Gustin
This post is in partnership with Time. The article below was originally published at Time.com.
Few companies are better positioned to capitalize on the Internet video boom than Netflix, the erstwhile DVD rental business turned online streaming powerhouse.
That's part of the reason why investors have pushed Netflix shares up more than 100% over the last year, although the stock is down about 20% over the last month amid broader weakness in the tech sector. A new study by Experian shows that Netflix is playing an important role in the still-nascent "cord-cutting" trend, in which users eschew cable TV service in favor of services like Netflix and Aereo.
On Monday, Netflix will report earnings results for the first three months of 2014, and Wall Street analysts are eager to see the extent to which the company's original content—House of Cards, in particular—is helping to attract new subscribers.
"We believe the company should benefit from the launch and awareness around season two of House of Cards and continued improvements in content, as well as positive seasonality driven by more Internet-connected devices and colder weather," Morgan Stanley technology analyst Doug Anmuth wrote in a note to clients.
Netflix's (NFLX) stock price has historically been very volatile, and if the company fails to meet expectations Monday—analysts expect the company to announce that it has added 2.25 million new subscribers—its shares could take a tumble. But over the long term, there are several reasons to be optimistic about Netflix's prospects, according to a recent study by investment bank RBC Capital Markets. Here are four of them:
1. For the first time, Netflix has surpassed YouTube to become the leading online video site, according to the RBC Capital Markets survey, which asked 1,033 Internet users about their entertainment habits. (This is the 10th such survey conducted by RBC technology analyst Mark S. Mahaney since May 2011). Some 44% of respondents said they use Netflix to watch movies or TV shows—up from up from 37% one year ago—edging out YouTube, which came in at 43%.2. Most Netflix customers are happy with the service, according to the survey. Overall Netflix satisfaction levels are now at record levels, with 66% of current subscribers responding that they are either "extremely satisfied" or "very satisfied" with their service, up from 62% one year ago.
3. Netflix subscribers are increasingly less likely to leave the service, the survey found, with 69% of current subscribers "not at all likely" to cancel their subscriptions in the next three months, up from 66% one year ago. "We note that this is the highest level we have tracked in more than two years," Mahaney wrote.
4. There is increasing evidence that Netflix's original content is keeping customers subscribed to the service by acting as "an anticipatory anti-churn factor," as Mahaney describes it. Some 47% of Netflix subscribers said that original content was "extremely important," "quite important," or "moderately important," when deciding about whether to remain a subscriber, up from 42% in November 2013.
Taken together, these trends provide a reason to be optimistic about Netflix's prospects. And despite the dramatic increase in the Netflix's stock price over the last year, Mahaney argues that the company remains undervalued. "We continue to believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn't currently factored into its stock price," he wrote in a recent note to clients.
Wall Street analysts will also be eager to hear more details from Netflix executives about the company's controversial agreement to pay Comcast (CMCSA) for a direct connection to the nation's largest broadband provider. Although Netflix CEO Reed Hastings has expressed his displeasure about the deal, there is clear evidence that the interconnection pact is substantially boosting Netflix performance for Comcast subscribers, which should improve customer satisfaction even further.
"We believe it is likely that Netflix is having similar conversations concerning interconnection agreements with other broadband providers," Mahaney wrote, "and we view the Comcast deal as incrementally positive for Netflix in the long term, as it should provide a better user experience for the company's streaming subs."
The frothy fundraising market may dry up soon.
FORTUNE -- If it feels like every startup you've ever heard of is rushing to drum up large rounds of funding, that's because they probably are. It's hard to miss the string of massive rounds from recent months: Lyft raised $250 million from Alibaba Group and Third Point. Airbnb is raising $450 million to $500 million. Dropbox raised more than $500 million. Insight Venture Partners invested $250 million MOREErin Griffith - Apr 18, 2014 5:00 AM ET
Forget microfinance. The startup Lenddo is using social data to determine credit scores for a new group of lendees.
FORTUNE -- A big challenge for people in an emerging middle class who are struggling to find avenues to credit is that they rarely have formal credit histories.
They do, however, have social networks -- rich communities of family members and friends who can vouch for their character and credibility. And increasingly, as MOREJessi Hempel, writer - Mar 18, 2014 3:10 PM ET
With $500 million in hand, the private equity firm dives into the technology industry.
FORTUNE -- Now would very likely be a horrible time to start a venture capital firm. After a lost decade, that sector finally has had some decent years, valuations are astronomical, and the smart money is getting out, not in. It would be a similarly complicated time to challenge the giants of private equity, which are slapping together MOREAdam Lashinsky, Sr. Editor at Large - Dec 19, 2013 10:57 AM ET
Fortune profiles investors who have done just that
FORTUNE -- Given that Apple (AAPL) suffered its worst trading day in four years Wednesday -- losing nearly $35 billion in market value by the closing bell -- this might seem an odd time for Fortune to run a profile of investors like Terry and Jeanne Gregory (pictured at right) who have put almost their entire life savings -- about $2.5 million -- into MOREPhilip Elmer-DeWitt - Dec 6, 2012 11:54 AM ET
The weeks before the numbers are released are critical
FORTUNE -- No matter how the market may squeeze Apple (AAPL) in the up and down of daily trading -- its forward P/E ratio as of Monday's close had been compressed to 10.53 -- the stock tends to seek its own level by the time the company issues its quarterly earnings reports.
Which makes the charts posted over the weekend by aapltrader99's Randy MOREPhilip Elmer-DeWitt - Jun 26, 2012 7:07 AM ET
Three Silicon Valley insiders created an investment fund to solve the ultimate tech-boom problem: owning too much startup stock.
FORTUNE -- In 2010, after three years as a communications manager at Facebook, Kathy Chan left. The 28-year-old's Facebook shares were the equivalent of a winning lottery ticket -- the company's valuation in private markets had already soared to $23 billion, but it was still a few years from its IPO. To MOREJessi Hempel, writer - May 17, 2012 5:00 AM ET
Like the tortoise in Achilles' footrace, they may be perpetually unreachable goals
"There's scant evidence that the stock market itself has paid much if any attention to analysts' price targets in recent years," writes Needham's Charlie Wolf in a note to clients Thursday that raises his own Apple (AAPL) target $80 to $620.
He's got a point. the average target among the two-dozen analysts we sampled on October 19, the day after Apple's MOREPhilip Elmer-DeWitt - Feb 9, 2012 9:14 AM ET
Breaks through previous intraday record of $427.75 set last week
UPDATE: Apple closed Wednesday up $4.41 (1.04%), to hit a new all-time high of $429.11. At one point in afternoon training it hit $429.47.
- - -
Apple (AAPL) quickly set a new intraday high Wednesday and kept climbing in early morning trading, although it's not clear why.
It could be that investors are moving into the stock ahead of next week's quarterly earnings MOREPhilip Elmer-DeWitt - Jan 18, 2012 10:08 AM ET
Buying puts or calls just before the numbers come out is a fool's game
Apple (AAPL) is a company that tends to surprise Wall Street every time it reports its quarterly earnings, usually on the upside, occasionally on the down.
As a result, the stock often makes big moves the next day -- sometimes as much as 5% and 6%.
Given the power of stock options to leverage your investment dollars, you might MOREPhilip Elmer-DeWitt - Jan 15, 2012 8:12 AM ET
|Many low-wage workers not protected by minimum wage|
|HBO shows coming to Amazon ... not Netflix|
|Students cry foul over athletes unionizing|
|Postal workers to protest at Staples|
|Thanks to Obamacare, more workers may quit their jobs|