Every time I write a positive story about Netflix (Nasdaq: NFLX), the same question always pops up in the comments: "Isn't the stock way too expensive already?"

Say what?
Netflix is in a high-growth phase of its history today -- a mode the company hasn't left despite more than a decade on the market. Management is pulling a couple of levers to adjust that growth on an ongoing basis, both of which directly affect both earnings and cash flow results: marketing expenses and licenses for streaming digital content.

Nearly every last penny of surplus cash is going into content deals, which is how Netflix keeps its library fresh and interesting while building the foundation for a DVD-less era. You can see how this strategy makes earnings figures nearly meaningless: Management picks a target, then spends or saves whatever it takes to get there. Blowout earnings aren't in the cards, and neither are total misses. And it doesn't matter anyway.

What's the story?
Subscriber growth and gross margin trends tell the real story here. The company is currently adding about a million new subscribers per quarter, giving lots of credit to the pull of digital content. With 15 million customers under its belt already, Netflix is as big as Time Warner Cable (NYSE: TWC) and set to pass cable leader Comcast (Nasdaq: CMCSA) in about two years. That's a serious changing of the entertainment guard.

Meanwhile, Netflix is enjoying the widest gross margins in company history at 39.4% last quarter, and that metric has been on an upward trend for more than two years. Digital deals like the Epix contract may look expensive up front, but I'm convinced that it's a fixed cost that doesn't scale with the number of subscribers, so the profits come along with economies of scale. If you look at Netflix's annual income statements over time, you'll notice a marked flattening of the cost of its services ever since the digital platform launched. DVD mailing is expensive and streaming is cheap, even with markedly higher subscriber counts to serve.

Best of all, when Netflix finally meets its growth targets and turns down the rocket boosters to a slow boil, profits and cash flows will suddenly skyrocket and make these old valuation calculations look irrelevant. But that day is still several years away.

I want a second opinion!
Fine, don't take my word for it. Piper Jaffray's senior media analyst, Mike Olson, sees Netflix being worth about $180 per share today. That's 45 times Olson's own earnings estimate for calendar year 2011, a figure he arrives at through an "improving content and device ecosystem" and high barriers to entry -- nobody else has the head start in digital media that Netflix has built over the years.

Do you still think Netflix is expensive?

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