Needham's Laura Martin: Netflix Is A 'Market Darling'

In a report published Thursday, Needham analyst Laura Martin discussed Netflix, Inc. NFLX's second quarter print, noting the company is a "market darling" right now.

According to Martin, Netflix is experiencing strong share price momentum for several reasons:

1) Subscriber growth "overdelivery": Netflix added 3.3 million subscribers, bringing its total count to 62.7 million. In the U.S., the company added 0.9 million subscribers to reach 41.1 million, its highest count ever. At the same time, its international base of 21.65 million is also a record high.

2) Profit margins were "well above" estimates while at the same time market expenses were lower than expected.

Related Link: A Bull, A Bear And Another Analyze Netflix's Earnings

3) Globally scaled ROICs and multiyear international growth runway: Netflix stated it will enter the Japanese market in the third quarter and enter Italy, Spain and Portugal in the fourth quarter. The company reiterated its goal to operate in 200 markets at the end of 2016.

4) Average selling price growth to boost margins: Netflix's 2020 margin guidance remained unchanged at 40 percent for the U.S. The company actually noted it is ahead of its five-year objective due to stronger revenue growth and lower content cost than expected.

5) Recent announcement by Charter Communications, Inc. CHTR that it will not charge Netflix (and others) to deliver its content.

Despite a positive outlook, the analyst did suggest investors exercise caution when investing in the name.

"The hardest part of investing in NFLX (our view) is its volatility and potentially large losses if you're on the wrong side of the trade," Martin wrote. "Netflix fell 20 percent on its 3Q14 call, but rose 20 percent after its 4Q14 call, and rose 10 percent after each of its 1Q15 and 2Q15 earnings calls."

Shares remain Buy rated with an unchanged $111 target price ($780 pre-split).