Netflix Is 'Priced To Perfection,' But When Will The Gravy Train End?

All eyes are on international subscriber growth, but will it be enough to give Netflix, Inc. NFLX a boost?

"Netflix is priced to perfection," Rich Tullo, director of research at Albert Fried & Company, told Benzinga. "If they don't make their international subscriber number or if they don't manage their content costs well, the stock is going to get hit."

Tullo (who currently has a small short position in Netflix) said that content costs are going to get worse over the next six to nine months.

"They have to meet the international [subscriber] number," he added. "Domestic, they can meet and the stock will be okay. If they miss on domestic, then there's a problem on the stock. International, they have to meet and exceed. It's really the talk of international that [pushed] the stock up in the prior quarter."

Related Link: Is Netflix Essential To The Future Of Pay-TV?

Threats Along The Way

Hulu has gone on a buying spree for content, inking exclusive deals for "South Park," "Seinfeld" and "Fear the Walking Dead."

"More content for any of these services, especially content that has a cult following -- and [shows] people like to binge watch -- is positive," Tigress Financial Partners analyst Ivan Feinseth told Benzinga. "Anything that, on a one-off basis, would drive people to subscribe. And I believe people would subscribe to Hulu just to see all of the episodes of 'South Park.'"

Tullo noted Hulu's content acquisitions and said the company has been "spending a lot of money."

"Just like the deal with AMCX for all the new content coming out of AMC," said Tullo, referring to "Fear the Walking Dead" from AMC Networks Inc AMCX. "And now 'South Park.' I guess the relationship between Viacom and Hulu has been growing because Viacom pulled their content deal off of Netflix."

Tullo suspects that Viacom, Inc. VIA is "very sensitive" to "cannibalization." He said Hulu is a good platform for that, partially because its U.S. subscriber base is much smaller than Netflix.

"If [Hulu is] paying a third for the content with less cannibalization, it's a pretty good," said Tullo.

Possible Outcomes

Lastly, Tullo speculated about Netflix's results and how investors may react.

"If they don't make their international number, the stock is down 50 [to] 150 points," he said. "If they miss their EPS estimate by a lot and it's on the content costs and they don't beat by 200,000 or 300,000 bodies on international, that's gonna have the same effect. If content costs are going higher, what are the international subs doing for the company? It's actually supposed to lower content costs."

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.