Netflix's Subscriber Growth Is Strong, But At What Cost?

Wedbush issued a report on Netflix, Inc. (NASDAQ: NFLX) ahead of the company's Q1 earnings call on April 15. Wedbush rates Netflix as Underperform and set a one-year price target of $245.

Analysts Michael Pachter, Nick McKay and Alicia Reese wrote, "We expect Q1 upside from season 3 of House of Cards, international expansion, and cost control…We believe Netflix's high valuation is unwarranted given the potential for slowing domestic growth as competition ramps up, coupled with increasing content costs."

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Wedbush believes that seasonality will likely impact international subscriber growth, but are confident that guidance of 2.25 million will prove too conservative given recent geographic expansion. International strength will be driven by recent launches in Western Europe, Australia and New Zealand. However, with U.S. competition increasing, Netflix will be forced to raise marketing spending in future periods to maintain subscriber net adds. This will hurt the profitability of the company as it will be forced to increase expenses to remain a market leader in video streaming.

Shares of Netflix closed on Tuesday at $423.46. Shares were up 1.5 percent in Wednesday's pre-market session.