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Netflix Investors: Don't Be Wooed by an Earnings Beat

While Latin America is predominantly an untapped market, there is some trepidation regarding Netflix's expansion in the U.K. and Ireland, where Amazon's (AMZN - Get Report) LoveFilm service already has a major foothold.

Comments from Netflix's third-quarter earnings conference call suggest international contribution profit will amount to a loss of $120 million in the first quarter, Wible noted. "We estimate it will take Netflix eight quarters to break even based on the challenges in the international market and comments made at their Mexican launch press event alluded to losing money in Latin America for two years."

Netflix shares have rebounded in the new year, surging more than 40% so far in 2012, making it one of the best performers on the S&P 500.

The question is how should you trade with the stock at these levels?

"Is this merely a dead cat bounce following the 40% to 50% drop since late October? Or was that drop in the stock too much and now we are readjusting to more realistic levels with a focus on potential in 2013 and beyond?" Wold asked.

The true testament for the fourth quarter will be if Netflix shows the ability to continue to grow the streaming business enough to offset rising costs and provides an indication of demand overseas.

"While neither of the two positive drivers are likely to generate upside to 2012 estimates, we believe they would not only set the stage for stronger-than-expected revenue and EPS growth in 2013, but they would also help to reinvigorate investor interest in the Netflix story -- and more realistic long-term valuation multiples going forward," Wold wrote.

-Reported by Jeanine Poggi in New York.

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