After missing their subscriber estimates in the second quarter, Netflix (NFLX) rebounded in a big way with their third quarter earnings this week. Here are my key takeaways:

• Revenue of $4 billion, a 34% increase year over year
• Domestic subscriber additions: 1.09 million vs 673,800 estimated, a beat of over 61%
• International subscriber additions: 5.87 million vs. 4.46 million estimated, a beat of over 31%

That’s incredible growth, especially among domestic subscribers, for a company that many people thought might see slowing growth going forward and might have saturated the US market already.

I very much have a love/hate relationship with Netflix. It’s currently an Enterprise level position and the second largest position in the Freedom Portfolio, so it’s clearly a company that I love. It’s also been the best performer of all of my positions in the Freedom Portfolio, even beating out mighty Amazon (AMZN). How could I not love Netflix with all of my investing heart?

As I’ve mentioned innumerable times in the past (and will continue to do so for the foreseeable future), I had originally bought shares of Netflix way back in 2004. Had I held onto those shares until now, the would be worth roughly $1.5 million, which is multiples greater than all of my retirement accounts put together right now. That’s a painful mistake, and thanks to loss aversion every time I look at my Netflix position I don’t see something that is up 600%. Instead, I just see the $1.5 million dollars that I don’t have due to selling too early.

P.A.U.L. Score

Protected: 3

This was a hard one to grade. On one hand, it’s not that difficult to start up a new streaming service, and we’re starting to see a lot of companies throwing their hat in the ring and announce their own streaming services. While it may be easy to dismiss many of those as attempts that are too little and too late, there are some pretty strong competitors as well. Disney’s (DIS) ESPN+ streaming service hit 1 million subscribers in an impressive amount of time and Disney itself has a huge library of content to draw upon (Star Wars, Marvel, ESPN, ABC, Pixar, etc) and will soon own the majority of Hulu after its deal with Fox closes.

Still, I don’t want to discount the advantages that Netflix has as the innovator and worldwide leader in the space:

1. Netflix has a huge catalog of content that people want to see, which drives more people to want to become subscribers.
2. Those subscribers give Netflix the cash to shell out big money to lure content creators like Shonda Rhimes away from ABC.
3. Those content creators then go on to create amazing content that people want to see.
4. Go back to #1.

That’s a powerful virtuous cycle that continue to build on itself and makes it more difficult for newcomers to usurp Netflix’s position. On top of that, Netflix currently has a huge lead in terms of international expansion, which I think serves them well going forward.

Ultimately, I went with a 3, which might seem like a cop-out, but which I think just acknowledges that Netflix is in a good position currently, and yet is still vulnerable to competition.

Alternatives: 5

During my description for Alternatives, I said, “the business has many different revenue streams that it could go after in the future and has shown a willingness to pursue them”. A score of 5 here might seem excessive, but I’m at least partially giving the company and management team credit for some of the most visionary changes in business models in my lifetime.

Netflix started off as a DVD by mail service that was revolutionary enough by itself at the time. However, Reed Hastings wasn’t willing to rest on his laurels and instead basically disrupted his own company by starting the transition to video streaming before anybody else was. 

What possible alternative revenue streams might Netflix pursue right now? There are rumors of Netflix testing out advertising or looking into selling merchandise. Those could both be potentially huge opportunities if Netflix decided to pursue them.

I don’t know what the future holds for Netflix, but I have faith the Reed Hastings has some ideas and won’t be afraid to pursue them. That’s why Netflix gets a 5 from me here.

Understanding: 4

All things considered, Netflix seems like a pretty easy business to understand. They spend money to produce movies and shows and they make money by signing up people to subscribe to the service. 

Long Runway: 4

This is a little hard to judge. Domestically, they seem to be getting close to saturating the market considering they have close to 57 million US subscribers and there are only a little over 125 million US households. However, they still have a massive international opportunity available to them. The question is if they can be the dominant leader in overseas markets like they have been in the US. With the exception of places like China, the early indicators seem to say that they can be. That’s why I’m giving them a pretty good score here as well.

Total Score: 16

A pretty good score, considering the max is 20. It’s a good thing, too, since it’s such a large position in the Freedom Portfolio. It’s amazing to me to think that shares of Netflix have increased over 70% year-to-date despite already running up huge in 2017 as well. Every time I think Netflix might be nearing the end of their spectacular growth story, they go and surprise me. I hope it continues in 2019.