Netflix Shares Collapsing

After opening up nearly 9% this morning following yesterday's strong earnings report, Netflix shares have fallen rapidly, and are now down over 4%.

Netflix earnings beat the consensus estimate by 14%. Revenues, net income, and total domestic subscriptions surprised to the upside as well.

Wall Street is concerned about the stock's valuation - it currently trades around 200 times trailing 12-month earnings.

BofA Merrill Lynch analysts Nat Schindler, Justin Post, and Jason Mitchell are among the most bearish analysts on Wall Street toward Netflix shares, maintaining an Underperform rating on the stock.

"Hard to find fault, but harder still to justify price," write the analysts in a note to clients this morning, describing the company's valuation as "sky high."

The Jefferies U.S. internet team, led by analyst Brian Fitzgerald, agrees.

"With a modest beat and 4Q outlook above consensus, NFLX now trades at 110x our new [2014 earnings per share]," write Jefferies analysts in a note to clients. "We find it difficult to justify this valuation given the risks of rising content costs, heavy competition, and the likelihood NFLX may need to raise additional capital to fund operations. Our model gives NFLX plenty of credit for go-forward growth and margin expansion, our 4Q estimates are above Street...yet we still see 45% downside to after-hours share price. Reiterate Underperform."

The chart below shows the drop this morning.