Notable Internet Analyst Reiterates Outperform On Netflix Following 20% Correction; Price Target Up To $140

Shares of Netflix, Inc. NFLX jumped higher by more than 4 percent in Wednesday's pre-market session following the release of a bullish report by a notable Internet analyst.

Mark Mahaney of RBC Capital Markets commented in a note that Netflix has achieved a "level of sustainable" scale, growth and profitability that isn't already reflected in the stock price. The analyst hinted he is not concerned with the recent correction in the stock and reasserted his position that Netflix is one of his "Top ‘Net Longs'" investment idea.

Mahaney found justification for his bullish thesis through an international survey which consisted of a survey of Internet users in the US, UK and Brazil.

U.S. Survey Highlights

Mahaney ran his 16th consecutive quarterly 1,000-plus Internet user survey and found that 49 percent of respondents use Netflix to watch movies and TV shows.

While the 49 percent reading marks a "slight slippage" from the 50 percent tracked in May, it still marks the second-highest level ever. The new survey also highlighted 50 percent of respondents watch YouTube videos, while 25 percent watch videos through Amazon Prime.

Mahaney noted that 68 percent of current subscribers are "extremely satisfied" or "very satisfied" with their Netflix service, while churn rates remain near record lows as only 5 percent of subscribers indicated they are "extremely likely" or "very likely" to cancel their membership.

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U.K. Survey Highlights

Mahaney ran his sixth U.K. survey of approximately 1,500 Internet users which showed that Netflix usage is "rising sharply."

Thirty percent of U.K. respondents stated they are Netflix subscribers – up from 25 percent in September 2014 and 14 percent in August 2013. In addition, 76 percent of subscribers are either "extremely satisfied" or "very satisfied" with the service – up from 71 percent in September 2014.

The analyst also pointed out that churn rates are reaching record lows with 26 percent of subscribers indicating they are "extremely likely" or "very likely" to cancel their membership, marking an improvement from the 31 percent in September 2014.

Brazil Survey Highlights

Finally, Mahaney ran his first even survey of 1,500 Internet users in Brazil which showed that Netflix usage is "remarkably high" with 60 percent of respondents indicating they use Netflix to watch movies and TV shows.

Mahaney noted that 81 percent of respondents indicated they use YouTube to watch videos, but Netflix's 60 percent ranks ahead of Globo at 50 percent and SBT at 40 percent.

The analyst  highlighted the impressive satisfaction levels with 94 percent of users responding they are "extremely satisfied" or "very satisfied" which churn rates are similar to U.K. levels with 26 percent of users indicating they are "extremely likely" or "very likely" to cancel versus 71 percent who indicated they are "not at all likely" or "slightly likely" to cancel.

Survey Conclusion

Mahaney concluded that Netflix's "very strong" international subscriber growth suggests the company's long-term international penetration level may be closer to 30 percent than the 20 percent he originally assumed. As such, the company may be able to capture 140 million international (and 200 million global subscribers) over the long-term.

Finally, the analyst suggested that at a 30 percent operating margin and $11 average revenue per user, Netflix could generate $10-plus in earnings per share potential which suggests "material long-term stock upside."

Shares remain Outperform rated with a price target raised to $140 from a previous $125.