Needham Analyst Explains Raising Netflix P.T. To $780 And Why International Subs Are More Important Than U.S. Subs

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Needham senior analyst, Laura Martin, raised her price target on Netflix, Inc. NFLX to $780 from $600 on Tuesday, following which Netflix shares opened higher and closed the day with gains of around 2 percent.


Martin was on CNBC recently to explain why she raised her P.T. on Netflix right now when the company is trading close to its all-time highs and why she think international subscribers are more valuable to Netflix than U.S. ones.


Why Now?


“Netflix has been down like three days in a row, it’s up $7 today,” Martin began. “But we have had a lot of pressure because of this Alibaba announcement that they were going to go into China and sort of get there before Netflix arrived in China and we just are not that worried about that particular negative for Netflix. We don’t think that affects either their U.S. or their European business and we didn’t have China in our numbers because it’s such a difficult market to enter.”


International Subscribers Are More Valuable


On non-U.S. subscribers being more profitable for Netflix than U.S. subscribers, Martin said, “Let’s recall that it took 8 years for Netflix to break even in this country as it moved to streaming from the mail and DVD business. Well, the minute you get into one of these offshore countries, like Netherlands they broke even in 18 months, same in Canada. In their longer countries it takes 2 years to 3 years to breakeven, why? Because most of your development costs are spent creating the U.S. experience.”


“And so now you are just tweaking it and you have to buy the content of course. But content costs offshore are much lower than content costs in America. So, you get definitely a higher return on capital, a higher capital efficiency when you enter a new geography and so, I think, international subs- when we think about what the lifetime value of a subscriber offshore is- are much more valuable than a U.S. sub,” Martin concluded.

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Posted In: CNBCMedia
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