Netflix, Inc. (NFLX) International Subscription Potential Points to Growth Opportunity


Cantor Fitzgerald analyst Kip Paulson conducted a Broadband Households (BB HH) penetration analysis on Netflix, Inc. (NASDAQ:NFLX), which resulted in encouraging findings for the video streaming giant’s growth prospects in the years to come. As such, anticipating greater international streaming subscriber growth, the analyst reiterated an Overweight rating, while raising the price target from $165 to $190, which represents a 14% increase from where the stock is currently trading.

“We present our detailed estimates for broadband household penetration by international launch cohort, and we raise our out-year subscriber estimates to at least keep pace with broadband household growth. We remain positive on the stock given our view of the company’s substantial long-term growth potential, particularly in int’l markets; a strong secular tailwind as linear TV shifts to internet TV viewing; the company’s leadership position, with $6B+ of P&L content spend; and the recent inflection/path to gradually higher operating/EBITDA margins,” asserts the analyst.

Looking ahead, Paulson forecasts domestic subscription growth to slacken over the next few years, to which he responds is “no surprise.” The giant is currently circling a 50% BB HH penetration in the U.S. and though the analyst still sees some momentum ahead, he predicts Netflix domestic BB HH penetration will hit 55% by 2024. Notably, in the first quarter of the year, Netflix underperformed its own outlook setting expectations to reach between 60 to 90M, “crossing” the 50M line.

However, Paulson believes “the greatest growth opportunity” for Netflix in the long-term lies in its pool of untapped international subscribers. International subscriptions presently represent 5.7% of international BB HH, which can “only increase in coming years” and translate into a “very long runway for growth.” Bullish on the giant’s meaningful international opportunity to gain subscribers, Paulson raises projections for both total streaming subscribers for 2024 from 196.2M to 233.7M, and international streaming subscription growth rate from 14% to 17.6% CAGR. Additionally, to be consistent with his estimate calling for 5.7% in 2016, the analyst lifts international BB HH penetration for 2024 from 10.2% to 13.3%.

Ultimately, for Paulson, not only are these estimates “achievable,” he even wagers, “If the U.S. level of penetration were attained globally, it would mean hundreds of millions more subs.”

According to TipRanks, a financial engine that measures and ranks analysts’ and bloggers’ performance, four-star analyst Kip Paulson is ranked #1243 out of #4575 analysts. Paulson has an 88% success rate and generates an annual yield of 12.8%. When recommending NFLX, the analyst earns a 15.4% average profit on the stock.

TipRanks analytics show NFLX as a Buy. Based on 31 analysts offering recommendations for this share, 21 issue a Buy, 9 maintain a Hold and 1 recommend a Hold. The 12-month average price target stands at $163.30, making a nearly 1% downside from where the stock is currently trading.