Netflix, Inc. (NASDAQ:NFLX) investors arguably care most about international prospects for the video streaming giant. Yet, a critical question lingers for Wall Street: can Netflix secure meaningful international sub adds without the support of lower income markets?
Top analyst Michael Olson at Piper Jaffray believes that though “the biggest pushback” from investors boils down to this idea, it is not that he disagrees that penetration here will be “limited.” Rather, the analyst argues that upper income international market adoption will be a sufficient offset for the giant, allowing Netflix to steam on its way to capturing 100 million long-term subscribers within the next three years.
Therefore, the analyst is exceedingly eager about the giant’s international domination possibilities, reiterating an Overweight rating on shares of NFLX while boosting the price target up to $215, which represents an 18% increase from where the stock is currently trading.
Olson asserts, “International growth is clearly the primary focus of NFLX investors; one of the most consistent concerns we hear, regarding ongoing growth potential, is the challenge the service will face gaining adoption in lower income markets. By 2020, we expect Netflix will reach 64M subs or ~50% U.S. household (HH) penetration. Our analysis suggests that Netflix can reach 100M international subs by 2020, with zero or very minimal penetration in lower income international markets. Based on this, we are increasing our international subscriber estimate for 2020 (ending Q4) to 100M and believe this could still be conservative.”
Ultimately, for Netflix, “achieving 2020 int’l sub ests requires minimal participation from lower income markets,” contends Olson, who acknowledges that “Netflix will not be able to add subscribers in lower income markets, where the equivalent of $8/mo is a far more meaningful ask than in the U.S.” but bets that the giant’s household penetration will hit 50% by 2020.
Michael Olson has a very good TipRanks score with a 65% success rate and a high ranking of #65 out of 4,628 analysts. Olson realizes 17.8% in his yearly returns. When recommending NFLX, Olson yields 18.2% in average profits on the stock.
TipRanks analytics demonstrate NFLX as a Buy. Out of 30 analysts polled by TipRanks in the last 3 months, 21 are bullish on Netflix stock, 8 remain sidelined, and 1 is bearish on the stock. With a return potential of 7%, the stock’s consensus target price stands at $194.50.