There was a discussion over on Yahoo's board asking this question. The poster had just closed out his long position to "take the money and run". They asked for a good reason to have stuck around without resorting to arguments like "this is the media of the future". Here's my answer:
Staying long is a contrarian position for me. For as much as I see the sell argument trying to pitch "no barriers to entry"/"competition coming"/"anyone could do this", I know from having been on the inside for seven years that all of those are both true and false.
"No Barriers To Entry"/"Anyone Could Do This" -- there are significant barriers to being able to obtain streaming rights, CDN agreements and a customer base at a cost-competitive level. Anyone could indeed replicate Netflix's success, but either they'd have to pay way too much for what they need, or they'd have to take so long developing all the necessary relationships that they wouldn't be a significant competitive threat for years.
"Competition Coming" -- It's true that there are competitors out there, but they're all still competing in the PPV or EST (electronic sell-thru) side of the game. Nobody has licenses that allow for a profitable all-you-can-eat plan, and you need to re-read my paragraph above for why they won't in any reasonable and economically feasible timeframe.
As far as paying too much for potential growth, given the US/Canada 120MM+ households, I would suggest that your imagination is failing you. There are at least a billion households around the world and a significant fraction of those have the hat trick of (loves movies, has internet, has discretionary income). An even larger fraction will have those three pillars by the time Netflix has the engineering bandwidth to be able to address those markets.
I know you said not to include vaporous statements like "this growth story hasn't yet really started to take off", but it's true. Every company climbs that s-curve of growth at a different rate, and Netflix is still vertical. I also feel certain, based on past experience, that Netflix has plans for how to expand their market and their offerings to stay vertical for a while.
Will there be retracement in the stock price? Of course. Will it crash and burn to $30, $50, $100 or some other specific number? Don't know, but probably never again below three digits. Will this company be around at some point in the future with a higher stock price than today? I'm almost 100% certain of that. To the extent that I'm less than 100% certain, I am starting to divest a bit, since the appreciation over the last year has seriously whacked my portfolio diversification. It's a high class problem to have, though, and I expect to have to address it again and again.
Disclosure: Long NFLX
Disclosure: Long NFLX