Netflix, Inc. (NASDAQ:NFLX) shares have been on a roll for almost a year now, setting a new record high of $314 a share earlier this month. But one by one, analysts are beginning to see the company’s stock as overpriced. Analysts from at least two firms downgraded the stock based on its soaring price, and this week Bernstein analysts Carlos Kirjner and Peter Paskhaver offer similar reasoning for their Underperform rating and $180 a share price target on the stock.

Netflix

There’s plenty of good in Netflix

They note that there are still plenty of good points when it comes to Netflix, Inc. (NASDAQ:NFLX). They believe that the company will keep growing its subscriber base and that it will continue to see its margins expand. They also believe that it will continue successfully replicating its business model in more and more areas of the world.

They note that the company’s current addressable market for domestic streaming service is about 45 million households and that it could expand to 65 million over the next few years. They said currently that about 70 million households do have broadband connections which can support Netflix’s streaming services, but approximately 25 percent of them can’t connect their TVs to the Internet. They believe this is significant because the number of homes willing to pay for a subscription without ever using the service on a television is very small.

The Bernstein analysts suggest that if Netflix, Inc. (NASDAQ:NFLX) has about 43 million domestic streaming subscribers “in steady-state” with a monthly churn rate of 2 to 2.5 percent, then it will need millions of gross additions just to keep its position. As a result, the company could push its subscribership up to more than 50 million households in any year or more than 75 percent of the 65 million households in the company’s future addressable market.

Why bullish expectations for Netflix might be too much

They said one of the most common bullish cases for Netflix, Inc. (NASDAQ:NFLX) is for it to have 50 million or more domestic subscribers in steady state. They said this means the company would either be serving more than 90 percent of the addressable market in any year or operate with a monthly churn of less than 1.5 percent.

The analysts said they aren’t aware of any subscription service without contracts or some kind of material customer investment in the setup and installation with such a low churn rate. As a result, they find the steady state 50 million subscriber case to be “highly unlikely” or even “extremely unlikely” because of the company’s current acquisition strategy. It offers a 30-day free trial, which increases churn but lowers the cost of acquiring customers. They also said Netflix, Inc. (NASDAQ:NFLX)’s practice of releasing all episodes of a new series at the same time allows for binge viewing, which likely increases churn as well.

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