William Blair Upgrades Netflix, Sees 50% Upside: 'Advantage In Original Content and Millennials Underappreciated'

William Blair’s Ralph Schackart believes that despite the volatile period of price increases for Netflix, Inc. NFLX shares, the long term risk/reward is favorable, while the stock has upside potential of about 50 percent.

Schackart upgraded the rating on the company to Outperform.

Survey Results

A proprietary survey by William Blair suggests the potential of the millennial demographic shift to reach Netflix’s long-term domestic subscriber target of 60-90 million is possibly being underappreciated.

“Despite concerns about domestic subscribers in the recent quarter, we believe that Netflix will benefit as its 70 million-plus audience of nonpaying, often younger users transition to ages at which they become more likely to pay for Netflix,” Schackart mentioned.

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New Subscriber Opportunity

If the company is able to convert 3 percent of this audience to new subscribers annually, the analyst estimates that Netflix could add 5.3 million domestic subscriptions by 2020 through this demographic lift alone.

According to the William Blair report, “The results of our survey, which specifically assesses which age groups are more likely to pay, show that the percentage of existing Netflix users paying for their account increases by nearly 60 percent between the age ranges of 15-19 and 25-29.”

Schackart also estimates Netflix would be able to add 17.7 million net subscriptions by 2020, 17 percent ahead of the consensus forecast.

Original Content

The analyst also noted that Netflix’s original content was being underappreciated, stating that it was the original content that differentiated the company from its peers, while 600 review scores showed that Netflix’s lineup of originals was superior to other networks.

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