MKM Partners: Netflix's International Opportunity Is Underappreciated

Shares Netflix NFLX rose by more than 600 percent year to date, significantly outperforming the Nasdaq index that has risen roughly 50 percent.

While such a tremendous outperformance may cause some investors and analysts to take a closer look at the name and question the current valuations, analysts at MKM Partners believe that shares of Netflix have plenty more upside.

"We still see three times or greater potential from here over the next four to five years," Rob Sanderson of MKM Partners wrote in a note to clients on Tuesday. "We think the international opportunity is larger than most investors recognize."

Netflix is going global

Sanderson believes that as Netflix continues to grow its original programming and securing global distribution rights, an eventual globally launched service is a possibility. Such a service could capture an incremental 45 million to 50 million subscribers in countries where Netflix has no direct presence.

In the meantime, Netflix will soon add Germany, France, Belgium, Switzerland, Austria and Luxermbourg to countries where it offers a membership. Australia and New Zealand are speculated to be added in the first quarter 2015.

Broadband speeds across the developed world is not a limiting factor, Sanderson explains. In fact, many developed countries in Asia have better broadband facilities than the United States, while European countries are comparable or better than the United States.

The possibility of a global content rights and a globally available service could expand the analyst's projected market share in 2020 of $100 billion "materially."

Bottom line

The analyst's statistics certainly work in Netflix's favor and confirm the company's growth projections. By 2020, global broadband subscriptions will grow to 1.05 billion including 120 million in the United States, 316 million in other developed countries and 614 million in developing countries.

Shares are Buy rated with a $565 price target.