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By Lisa Richwine
July 26, 2011 11:21 PM EDT
Netflix Inc's star darkened briefly this week after a rare stumble on pricing incensed investors and triggered an unusually dim growth projection.
But longer-term, Wall Street remains enamored of a company expected to ride an expansion beyond U.S. shores and a bigger streaming push that will cushion rising content-acquisition costs.
The company surprised investors by projecting a pause in its normally explosive subscriber growth, sending its shares plummeting as much as 10 percent on Tuesday.
Yet many industry experts and analysts accepted Chief Executive Reed Hastings' view that the slowdown is a mere hiccup before user-growth returns to year-over-year increases.
"There is certainly plenty of room in the market for them to grow," Gartner analyst Michael Gartenberg said.
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The new prices "still represent a good value for consumers," who are increasingly turning a wide array of Internet-connected devices to watch television and movies, he said.
Still, a few analysts, including Wedbush's Michael Pachter and Morgan Stanley's Scott Devitt, sounded a note of caution on Tuesday, echoing concerns Netflix had come too far too fast.
Netflix shares were trading nearly 800 percent above levels in early 2009 and the stock has drawn heavy short interest. Reuters Starmine data ranks the stock higher than 86 percent of the stock in its group in how vulnerable it is to a short squeeze.
Devitt expects Netflix shares to "exhibit weakness" relative to its peer group over the next three months."
"Confusion around the impact to the long-term subscriber growth trajectory in the U.S. market will linger on investor minds," Devitt said in a research note, reiterating an "equal-weight" rating on Netflix shares.
Wedbush's Pachter, who has rated Netflix "underperform" for more than a year, thought the company overestimated the number of people who would trade up to costlier plans, which separate costs for DVDs-by-mail and streaming plans. Subscribing to both services will cost more.
Pachter's current 12-month price target is $110, up from his previous $100 target, but far below current levels.
Apart from the price increase, some say the company -- despite touting an international expansion just getting in gear and more revenue for streaming offerings -- will find content increasingly costly as it shores up its library to compete with the likes of Amazon Prime, Hulu and even Wal-Mart's Vudu.
"Their biggest challenge is their content costs are escalating dramatically," Pachter said.
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