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.

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