Netflix, Inc. (NASDAQ:NFLX) reported strong third quarter results this week, and analysts at MKM Partners are raising their estimates for the company. However, they note that management at Netflix appears concerned about how high the company’s shares have gone and tried to throw cold water on it to cool it off a bit.


Estimates for Netflix raised

Analyst Rob Sanderson has a Buy rating and a $370 per share price target on Netflix, Inc. (NASDAQ:NFLX). He called the company’s third quarter results “a healthy breather” for its stock. He notes that subscriber trends and domestic additions were strong an in line with guidance. He raised his estimates for the company, particularly due to slightly higher international subscriber estimates.

The analyst says international subscribers are becoming a bigger focus for Netflix with management examining all of the major broadband markets. The company plans to launch in a number of additional markets next year. It also believes subscriber mix can shift toward international subscribers, going even as high as 70% international and only 30% domestic. He says an international opportunity that’s either the size of the U.S. market or bigger has been “a tenant” of their bullish view and valuation of Netflix.

Netflix’s content improving, distribution could be next

Sanderson notes that Netflix, Inc. (NASDAQ:NFLX) will continue to focus on its original series and probably double its spending in this area next year. However, he expects this spending will remain less than 10%. Over time, management has suggested it could go as high as 25% and that they’re interested in documentaries and even movies, but not live sports.

Management also confirmed that they were having discussions with Comcast Corporation (NASDAQ:CMCSA) and other cable operators about potential partnerships. Sanderson suggests wholesale or retail relationships with cable operators would be a positive for both sides. He believes it would accelerate Netflix, Inc. (NASDAQ:NFLX)’s subscriber growth while also changing the perception of investors who see problems with penetration.

Netflix management concerned about “euphoria”

After reviewing Netflix’s investor letter, the analyst noted that management reported “a sense of euphoria” in that letter, likening it to 2003 when the company was the NASDAQ’s best performing stock. They suggested that investors are pushing the company’s share price higher than they would like it to be.

In spite of his Buy rating on Netflix, Inc. (NASDAQ:NFLX), Sanderson views yesterday’s reversal in share price as healthy. He expected a pullback even with solid results. He continues to see the company as “a secular long” and is still bullish on the opportunity for penetration and earnings power in the coming years.