Netflix (NFLX) Could Amass 160MM+ Subs by 2020 - RBC Capital's Mahaney

November 22, 2016 5:26 PM EST
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    33 Buy, 22 Hold, 10 Sell

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RBC Capital analyst Mark Mahaney updated his long thesis on Netflix (NASDAQ: NFLX) following U.S., Germany and France surveys. The analyst reiterated an Outperform rating and price target of $150. While the U.S. remained robust, it was incrementally mixed. Meanwhile, Netflix is seeing rising satisfaction and penetration in France and Germany. The firm's updated global broadband rollout analysts suggests 160 million+ subs by 2020.

Mahaney noted the following key points:

#1: U.S. Survey Results Remain Robust, Tho Incrementally Mixed: Key findings from our 20th quarterly 1,000+ U.S. survey: 1) Very High Usage Levels: 54% now use Netflix to watch Movies & TV shows – flat with record-high 54% in August, and above both YouTube (50%) and Amazon (29%). 2) Though Mixed Satisfaction And Churn Trends: 64% of NFLX subs are “Extremely” or “Very satisfied” – down from 67% in August and the lowest level since December 2014; and 84% “Not at all likely” or “Slightly likely” to Churn – down from 89% in August and the lowest seen since May ‘13. 3) Improving Content Selection: 50% of subs believe that the company’s streaming content has “Greatly or moderately improved” or “Slightly improved” over the last 12 months, up from 47% in August ‘16 and from 43% last year. & 4) Millennnials Much More Likely To Subscribe: 67% of those aged 18-29 currently subscribe, while only 43% of those aged 29+ subscribe. We view this as a key leading indicator. The So What? Netflix’s value prop remains strong & stable in the U.S., tho the company may not have fully recovered from the price increase impact on satisfaction.

#2: France & Germany – Rising Satisfaction And Penetration: Key findings from 5th survey of 3,000 ‘Net users: 1) Willingness To Pay For Streaming Content Stable: 35%/34% of French/German respondents “Extremely” or “Very” likely to pay for content vs. 21%/20% in December ‘14. 2) Netflix Penetration Rising Steadily: 18% in France & 17% in Germany now use Netflix to watch Movies & TV shows, vs. 5%/4% in December ‘14, with Netflix now the #1 SVOD player in France (taking the crown from Canalplay) and still the #2 SVOD player in Germany (behind Amazon LoveFilm). 3) Satisfaction Levels Rising: 88% of French and German subscribers are “Extremely satisfied” or “Very satisfied” – a slight rise from May, despite a likely move beyond Early Enthusiasts. The So What? Netflix’s competitive positioning and penetration both continue to steadily improve in Europe.

#3: Updated Global Broadband Rollout Analysis Suggests 160MM+ Subs by 2020: We continue to believe NFLX can amass 160MM+ subs by 2020, assuming a range of adoptions for each of its regional markets. If this is accurate, we see NFLX generating $8-$10 in GAAP EPS by ‘20. We believe that a secular growth, high-visibility subscription model would carry a premium 20X P/E multiple, which implies a potential $200 stock in ‘19.

For an analyst ratings summary and ratings history on Netflix click here. For more ratings news on Netflix click here.

Shares of Netflix closed at $117.96 yesterday.

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RBC Capital, Mark Mahaney

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