BOSTON (CNN/Money) - "You're either in or you're out." That declaration, sternly purred by Teutonic temptress Heidi Klum, was the "You're fired" catchphrase for the recently completed hit show "Project Runway."

For Netflix (Research) investors, it's time to ask that question: Are you in, or are you out?

You'd be forgiven for choosing the latter, but not because the company has misfired of late. On the contrary, things are looking up for Netflix in many regards. Its most recent filing saw 2.6 million total subscribers, the lowest-ever churn rate, and record revenue of $143.9 million.

No, the reason you might consider bailing is a Reuters story in which Netflix CEO Reed Hastings allegedly answered "Correct" when asked if he was willing to forgo profits for the next five years in order to grow share.

Rich Ingrassia, an analyst with Roth Capital, read the report. "It's like 1999 over again," he says. "If that's their strategy, they should be a private company. The Street will take you down to zero if you're growing revenue at the price of profitability."

I caught up with Hastings on Friday morning. "I fell for the oldest trick in the book," he says, claiming he was misquoted. "They asked if it was possible, and I said, in my analytic best, 'Anything is possible.'"

Ready for the ride?

So there you have it. Do you have the stomach for that kind of ride for the next five years? The rewards, of course, are huge. Hastings's stated goal of 20 million subscribers (he refutes Reuters's claim that he said the company could do it in five years) is, well, monumental -- and a point of confusion among analysts.

"I don't know where he came up with 20 million," says Michael Pachter, an analyst with Wedbush Morgan who has a "sell" rating on Netflix. "There are only 50 million U.S. households that rent more than once a month, and capturing a 40 percent share of these, with Blockbuster ramping up as a competitor, sounds ambitious."

Netflix told investors last year not to expect profits for a year as it spent to gain share in an increasingly competitive market.

That plan, according to Daniel Ernst, an analyst with Hudson Square Research, makes sense. "In our models, this one year of belt-tightening yields very attractive returns," he says. "A protracted war would be good for no one, especially Netflix."

But according to that plan, as the company gets more subscribers, it should see earnings in the back half of 2005 (though it would still show a net loss for the year). Hastings's alleged comments are all the more troubling considering that quarterly profitability is supposed to be right around the corner.

The Blockbuster factor

Also right around the corner, however, is Blockbuster and its fourth-quarter earnings, which will be announced on Wednesday. The company is ramping up its online efforts considerably, with Netflix as its target.

"Blockbuster is succeeding," Hastings admits. "But the market is plenty big for both of us."

Netflix investors would do well to look at the total new subscribers Blockbuster Online reports for its December quarter. The company announced earlier that it had added more new customers than Netflix did in the September quarter, but didn't specify how many. Netflix says it added 381,000 customers in the December quarter -- a lofty goal for Blockbuster's still-young service.

Wedbush Morgan's Pachter, who has a "buy" rating on Blockbuster, doesn't think the company will beat Netflix's December numbers, but says he's looking to the March quarter to get a better look at how the market will shape up. That quarter will be the first showing the results of Blockbuster's "No Late Fees" and heavy online-service promotional campaign.

If Blockbuster reports strong numbers for its $14.99 Netflix-like service, it won't really matter whether Hastings's comments were taken out of context. In many ways, he'll be forced to increase spending to keep growing in order to fend off Blockbuster's deep-pocketed maneuvers. So buckle up, Netflix investors, it's going to be a hell of a ride.

Speaking of a hell of a ride and "You're in or out": I'm out. After three and a half years and more than 300 columns, this is my last column for Tech Investor. It's been a great experience. For now, I leave you in the very capable hands of Paul LaMonica, who, despite his allegiance to the Yankees, is a fine guy, a keen wit, and an astute observer.

To send Eric a note, shoot him an e-mail at ehellweg@hotmail.com.

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