Will Netflix Reach 150 Million Streaming Subscribers By 2020? This Analyst Thinks So

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In a report published Sunday, Stifel analyst Scott Devitt argued that
Netflix, Inc.
NFLX
's pace of subscriber growth is accelerating, attributed to its expanding content of original content that is growing "deeper and deeper," leading the analyst to project Netflix will reach 150 million subscribers by the end of 2020. "In just three years, Netflix's slate of original content has gone from a few notable series launched per year to several quality pieces of original programming each month," Devitt wrote. "we believe this deepening catalog of original content is having a significant impact on the company's ability to sign up new subscribers and retain existing ones." Devitt noted that his 2020 projects are based on Netflix's subscriber outperformance in the recent quarter in which the company reported 4.88 million net adds which exceeded the company's guidance by 20 percent. The quarter marked a "meaningful inflection" in subscriber growth and hinted that its international expansion is paying off. Devitt further added that Netflix's subscriber growth is "fueling" a notable increase in its spend. The analyst estimated Netflix will spend $6 billion on content in 2017 and $8 billion annually by 2020. The company is investing in content so when it expands to new markets it has sufficient content to impress new consumers on day one. Naturally, Netflix's international expansion will weigh on its contribution margins over the next few years, however, the company has already stated it is able to gain leverage on content spend by spreading it over a larger number of new markets. Bottom line, Netflix is projected to start seeing leverage on content spend per subscriber outside the U.S. in 2018. By 2020, the company will exceed 20 percent contribution margins as there are no "structural barriers" to international margins approaching the level of domestic margins over the long-term. Shares remain Buy rated with a price target raised to $725 from a previous $650.
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Posted In: Analyst ColorAnalyst RatingsNetflixNetflix InternationalNetflix Original ProgrammingScott DevittStifel
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