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Why Did Netflix (NFLX) Climb 13% Today?

In the first day of trading after Netflix NFLX posted stellar and unforeseen subscription growth in its Q2 earnings report, shares of the on-demand streaming video service skyrocketed as investors dove headfirst into the stock.

Shares of Netflix soared 13.54% on Tuesday to close just below both its 52-week and all-time high, which it reached today. Yesterday, investors showed their indifference to some of Netflix’s financials when they jumped on the stock in after-hours trading despite the company’s failure to meet its second-quarter earnings estimates.

Today’s massive gains were likely spurred by one simple fact: Netflix added 5.2 million subscriber in its second quarter, which is almost 2 million more than the company estimated. Over 104 million subscribers now use the video-on-demand company.

Tuesday’s climb was fueled by massive trading volume. More than 40.1 million Netflix shares traded hands on Tuesday — the company’s average volume is 6.6 million.

Netflix’s one-day volume the day after it reported its first-quarter earnings in April was 19.7 million. The company moved 23.2 million following its fourth-quarter earnings in January. One day after it reported its third-quarter numbers in October, Netflix’s volume was a whopping 42.2 million.

Investors pumped the stock today, and it very well could surpass the big third-quarter 2016 number in after-hours trading.

User Growth Is King

Netflix added 1.1 million new subscribers in the U.S. last quarter, which marked its biggest quarter domestically since 2011. Maybe more importantly, the company added 4.1 million users outside of the U.S. The company’s international users now account for just over half of Netflix’s total subscriber base.

The company hopes to continue its rapid international growth, projecting to add 3.65 million such subscribers next quarter.

Quarter-over-quarter user growth has become all-important, especially in the social and on-demand world. For companies who make most of their money through advertisements, such as Facebook FB and Snapchat SNAP, they must serve more ads without distracting from the core product.

Mark Zuckerberg’s company keeps gaining users and therefore is riding high. Snap is still adding users, but the company has a plethora of other problems and has seen its value plummet accordingly.

For Netflix, competition from the likes of Amazon (AMZN) and Hulu has forced the company to invest heavily in more original content in order to attract and even poach new users. And for now, it seems to have paid off.

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