Hargreaves: Here's How Netflix Hits $140 In 12 Months

Netflix, Inc. NFLX shares are trading near $87 on Wednesday morning, off their $100 highs made earlier in the year amid a broader market selloff. While some investors are fleeing the streaming company, one analyst isn't: Pacific Crest's Andy Hargreaves.

"We recommend buying NFLX. We believe Netflix’s seamless global distribution is a structural competitive advantage that is likely to provide efficiency advantages that compound over time," Hargreaves wrote in a note this week. He cited three reasons why his team continues to like Netflix stock:

1. Netflix has global economics. "[W]hile U.S. and international subscriber trends remain important, total global subscriber and revenue growth will be more important to determine incremental profitability, reinvestment levels and total profit potential."

2. Global distribution is a "structural" advantage. "Global distribution provides a data feedback loop that should allow Netflix to invest in content, marketing and product development more efficiently than key competitors," Hargreaves said.

3. These global advantages should become clear in 2016. "We expect Netflix to add 21.5 million global subscribers in 2016, up from 17.4 million a year ago and ahead of the consensus expectation."

Pacific Crest holds a $140 price target on Netflix that assumes 195 million global subscribers with an average revenue per user of $13 by 2024. In an extremely bullish scenario, Hargreaves said Netflix would hit 215 million over the next nine years, while the bear case assumes total subscribers stall at 135 million.

The analysts also showed ARPU trends compared to a major competitor, Comcast.

Netflix's ability to buy content without having to keep a linear programming schedule is a key advantage that should keep subscriber costs low and growth coming, they wrote, adding that business model efficiency is its second reason for differentiation.

Shares are down 2.2 percent on Wednesday, but still up significantly over the past 12 months.