Netflix -- A Rocket Stock That Will Come Crashing Down to Earth

NEW YORK (TheStreet) -- Since Netflix (NFLX) reported its first-quarter results on April 15, the stock has been a rocket ship. The stock has exceeded the price target for the 42 analysts who follow the company. (Well, except for two guys who are sticking to their $900 and $700 price targets, respectively.) In early trading Wednesday, the stock was above $623.

First-quarter net subscriber adds were impressive. The company added 2.3 million domestic customers and 2.6 million international subscribers. With the additional 4.9 million subscriptions, the company now has a total global user base of 62.3 million. Customers streamed 10 billion hours of programming last quarter.

The company will launch 320 hours of original content this year. The additional content has reduced churn and accelerated subscriber growth. The company was also able to expand domestic margins by 370 basis points.

While I think the company will be able to continue to grow and add new subscribers, the stock has gotten ahead of itself. The company maintains it can reach 200 countries over the next two years, and analysts forecast it could have as many as 150 million subscribers by 2020.

But all that expansion costs money. The company is also spending more on content. This year, Netflix will spend as much as $3 billion on fresh content. At the same time, competitors -- like Amazon (AMZN) -- are bidding up the price of content. And, don't forget, all that spending is causing earnings to exceed free cash flow. The gap between them is nearly $800 million, which has to come from somewhere.

Eventually, somebody is going to want his or her $800 million bucks, right?

While I don't pretend to be a technician, when I look at the chart, I see a huge gap between the share price and the moving averages. That can't be healthy.

NFLX Chart
NFLX
data by YCharts

Netflix has a history of falling back down to support. The 50-day moving average is substantially lower. That's going to sting when the stock gets back down there.

I like the company and the service, but I hate the stock. Netflix bulls will likely have a scary trip back to Earth (or at least to support levels) sometime soon.

This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.

More from Opinion

Nvidia's iPhone-Like Strategy for Growing Graphics Chip Sales Could Pay Off

Nvidia's iPhone-Like Strategy for Growing Graphics Chip Sales Could Pay Off

Wednesday Wrap-Up: What Is Tilray Smoking?

Wednesday Wrap-Up: What Is Tilray Smoking?

Apple's iPhone XS and XS Max Are Good Enough to Win Over Owners of Older iPhones

Apple's iPhone XS and XS Max Are Good Enough to Win Over Owners of Older iPhones

Tuesday Turnaround: It's All About Microsoft...And Dogs?

Tuesday Turnaround: It's All About Microsoft...And Dogs?

Oracle Slumps After Missing Revenue Estimates: 7 Key Takeaways

Oracle Slumps After Missing Revenue Estimates: 7 Key Takeaways