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Street’s most bearish Netflix analyst thinks stock will pop

Why Netflix could pop on earnings

Netflix is due to report third-quarter results on Wednesday after the close, and despite having the most bearish price target on Wall Street, Wedbush analyst Michael Pachter thinks Netflix could actually tick higher on earnings.

"I think the company's going to beat the quarter quite easily," Pachter told CNBC on Tuesday.

At $40 per share, Pachter's price target on the stock represents a 63 percent drop from Tuesday's closing price. It's also about 67 percent lower than the average analyst target, according to data from Thomson Reuters.

Still, Pachter said Netflix could trade "a bit" higher following earnings based on two key factors.

First, Pachter said investors should be satisfied with the company's domestic subscriber additions for the quarter. "I think their partnership with DISH Network added at least 200,000 domestic subscribers, so I think people are going to be very pleased with the results," he said.

In a recent research note, Pachter said he expects the company to add 1.25 million net domestic streaming customers, adding that new original content, along with partnerships, "likely drove subs above its internal forecasts."

Pachter said he also expects international subscriber growth to continue "humming along."

"They're opening in new countries pretty much at will," he said. "They're adding hundreds of millions to their total addressable market every quarter." Pachter said he was expecting 2.5 million international streaming additions for the quarter, writing in his research note that the company's expansion into Japan in September will "likely drive overseas momentum."

Notwithstanding his expectations for the quarter, Pachter reiterated his bearish long-term view on the stock.

"We are not ready to throw in the towel on our underperform rating and price target," he wrote in his note.

According to Pachter, the company's recent move to increase monthly subscriber costs looks "somewhat sinister" and could have implications down the line. "I think they're going to use the price increase … as an excuse for lackluster domestic subscriber additions in December," he said.

Pachter added that increasing content costs and rising competition in the space could ultimately push the stock lower towards his target.