GO
Loading...

Netflix Entering a ‘Virtuous Cycle’: Pro

Getty Images

The Netflix bulls are feeling vindicated after the online video company put up better-than-expected numbers on Monday. And some analysts see more gains to come its benefits from its growing original content offerings.

"What you will see here is the company growing its total addressable market and improving profitability at the same time," Tony Wible, an analyst at Janney Montgomery Scott, told CNBC. "So I think they have more capacity to buy more content which improves the competitive environment even more. I think you have a great, virtuous cycle that's kicking in."

Originally programming is transforming how consumers view Netflix and is likely to reduce long-term subscriber churn, said BTIG's Richard Greenfield in a separate "Squawk on the Street" interview.

"People are using their Netflix more and more every day and the more you use something the less likelihood you're going to cancel," he said. "As you start to see churn tick down, the ability to outperform on subscribers… is why the stock is going to $250."

He also said that paying up for third-party content becomes less important as it develops its own quality original programming.

"Every cable network evolves from buying other peoples' stuff and paying up for it to financing and owning their own catalog of content," he said. "I think they're actually going to have more leverage over their content costs over the next 12 to 18 months than investors currently realize and give them credit for."

But Wible said the one negative in the Netflix report was that it was looking to pull back on some of their spending which could cost it subscribers. "What the Street is saying is we don't care about profitability and we care about sustaining the (subscriber) growth," he said.

He added that as the subscriber base grows, they are better able to spend on content which in turn helps drive out the competition. "Netflix is getting closer to a monopolistic control of the market," Wible said.

Not all analysts are convinced original programming will lead to sustained subscriber growth, however.

Michael Pachter of Wedbush wrote in a note Tuesday, "In our view, much of the recent subscriber growth is an acceleration of subscriptions that would have been sold later in the year; accordingly, we expect Netflix to face a headwind in Q3 and Q4." He has an "underperform" rating on the stock and a 12-month price target of $65.

(Read More: Netflix Bear Sees Content Cliff Ahead)

BTIG's Greenfield still sees more gains for the stock even after Tuesday's 24 percent surge as the international business becomes more profitable.

The BTIG analyst said his $250 price target puts no valuation on its international business, but as it moves towards profitability, "That provides another leg of growth and may provide bigger upside to investors."

By CNBC's Justin Menza; Follow him on Twitter @JustinMenza

Additional News: Netflix Focuses on Targeted, Premium Content, and It Works

Additional Views: Netflix Shares Could Surge 40%: Analyst

_____________________________
Disclosures:

BTIG had no conflicts to report. Wible and Janney Montgomery Scott own shares of Netflix,the company is an investment banking client and Janney Montgomery Scott acts as a market maker for shares of Netflix.

_____________________________

Disclaimer

Market Insider with Patti Domm