Netflix Will Double Subscribers By 2020 (Or Come Close)

Netflix, Inc. NFLX shares are trading flat in the $93 range early Tuesday morning, despite an upgrade from Piper Jaffray analyst Michael Olson. The firm cited valuation as the primary reason for its bullishness, adding that international growth is the key story regardless of what happens in the U.S.

How Big Is Netflix's Opportunity?

Olson also provided subscriber estimates out to 2020. Netflix, which reported about 75 million world wide streaming subscribers, is projected to hit 142 million subscribers by 2020. That's a compound annual growth rate of 13.6 percent, down from the subscriber CAGR Netflix achieved between 2012 and 2015 (29 percent).

Given a few conservative estimates from the analyst, it's reasonable to think Netflix subscribers can double over the next half-decade.

Olson provides more specifics behind this estimate.

• It assumes domestic subscribers will slow as it "approaches saturation," and reach 63 percent of the entire U.S. market.
• Netflix would have a 15 percent international penetration rate in this scenario, not including China, South Korea and Japan. Olson said this number could be "conservative," given that they would have a half-decade of Netflix availability by this point.
• The service would be used by 10 percent of the South Korea and Japan, lower than the international average. Olson thinks local competition will require Netflix to do "significant" marketing and content localization.
• Lastly, Olson sees Netflix penetrating just 1 percent of China's market. "In our model we assume that Netflix has made no material traction in China by 2020," the analyst wrote, adding that it could be a conservative estimate if Netflix does make headway with the country's government.

Piper Jaffray has a $122 price target on Netflix stock, about 31 percent upside from current prices.