Wall Street Reconsiders Netflix After Its Startlingly Strong Q4 Results

The company's stock price is up more than 37% to about $141.78 this morning, the highest it's been since fall 2011. But analysts are mixed about whether it's a good idea to jump on the bandwagon the day after Netflix reported far better than expected results for the end of 2012. Sterne Agee's Arvind Bhatia urges caution, even as he raised his earnings per share estimate for 2013 to $1.52 from 50 cents. Today's pop is 'likely driven by short covering,' he says. Even though he is 'slightly encouraged by improvements in the fundamentals,' he doesn't recommend 'chasing the stock at current levels.' He notes that Netflix shares typically take big swings the day after earnings ' going -12% the day after 2012's Q3 results came out, -25% after Q2, -14% after Q1, +22% after 2011's Q4, and -35% after Q3. Credit Suisse's Stephen Ju is zigging while others zag, lowering his rating to 'neutral' from 'outperform' based on today's higher stock price which he says is now in line with his new target price of $132, up from $80.

Macquarie Equity Research's Tim Nollen came from a different direction, raising Netflix to 'neutral' from 'underperform,' revising earnings to $1.22 from 52 cents with the stock price target upped to $120 from $50. He still questions whether Netflix can 'drive sub growth to sustainably keep revenue ahead of content cost increases.' He adds that he still believes Amazon and Redbox 'will provide more competitive pressure over time' and fears that, with the big bump in Netflix's stock, the possibility that it will be sold looks 'even less likely now.' Cowen and Co's John Blackledge is a bit more optimistic as he raised his earnings estimate for this year to $2 from 86 cents. Although he's sticking by his 'neutral' rating, he says that 'results were compelling and we will be revisiting our [long term]thesis in coming weeks.'

While most analysts reassess their view of Netflix, Bernstein Research's Carlos Kirjner is standing firm with his 'neutral' rating and $71 price target ' even as he acknowledges that the company had what he calls a 'perfect quarter.' He still doesn't accept CEO Reed Hastings' view that the company could attract as many as 80M domestic streaming subscribers this decade. The reason? He doesn't believe that 'Comcast, Time Warner Cable, Charter or Cablevision would be willing to carry 2 hours or so of video a day to 70% of their subscribing homes without trying to recover, through increased consumer pricing (or maybe a fee charged directly to Netflix), the negative impact of Netflix's success on their video revenues, on their advertising revenues, on their broadband related [expenses] and some extra value to boot (which you can and probably will do if you are the broadband monopoly).' And wireless broadband providers can't compete with cable unless you 'rewrite the laws of physics to believe wireless networks can support long form video at scale.'

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