Did Netflix Shares Get a 'Network Neutrality' Lift?


It’s possible Netflix rallied on the FCC’s passage of network neutrality rules — but its shares are still off more than 10% from the 52-week high.

Several news reports on the FCC vote highlighted the fact that Netflix’s stock rose on Tuesday (including the NY Post and Marketwatch), presumably indicating investors were more bullish now that Internet video streaming is “protected” from discriminatory action by ISPs. The movie rental company gained 4.5%, to close at $186.24 per share Tuesday.

Netflix opened slightly up in morning trading Wednesday, with about a 1% uptick to north of $188 per share.

Arguably a bigger contributor to Netflix’s rise: Apple TV on Tuesday said it was on track to ship 1 million Apple TV set-tops this week; one of the major new features is the ability to access Netflix’s instant-streaming service (see Apple TV Sales To Hit 1 Million This Week).

Plus, NFLX has been a highly volatile stock. In fact, it’s down 9.5% for the month of December as of yesterday. And it’s off the 52-week high of $209.24.

On Nov. 30, Netflix shares jumped 3.5%, closing at $205.90, the day after Level 3 complained Comcast was setting up a “toll booth” on the Internet. Comcast said it was charging standard connection fees to handle the influx of Netflix traffic from Level 3’s content delivery network (see Level 3 Alleges Comcast Demanded Fees To Deliver Internet Content).

It’s also worth pointing out the broader market was up Tuesday — independent of the FCC decision. A separate story on Marketwatch cited good news from banks for the overall buoyancy (Dow up 0.5%, S&P 500 up 0.6%, Nasdaq Composite Index up 0.7%).

Meanwhile, Morgan Stanley analyst Benjamin Swinburne said the FCC’s 3-2 party-line vote was “an incremental positive for the cable industry” because it minimizes the potential for the agency to enact more onerous regulation under “Title II” classification, such as rate limits, prohibition of usage-based pricing and forced network unbundling/wholesaling.

“We believe that in designing the rules, the FCC was careful to not deter future investment in wireline broadband, attempting to strike a balance between consumer protection and the economics of providers,” Swinburne wrote. “Unfortunately, the order’s legal foundation is likely to be challenged in court, creating the potential for future regulatory uncertainty should the rules fail to hold. “