3 Things The Market Is Missing About Netflix

Atlantic Equities’ Hamilton Faber believes Netflix, Inc. NFLX “represents the best way to gain exposure to the key shift to TV viewing over the internet.”

The analyst upgraded the company from Neutral to Overweight, while increasing the price target from $115 to $130.

Underestimated Opportunity

Faber believes the market is underestimating Netflix’s U.S. pricing opportunity, as well as its international opportunity and “the potential profitability of the model as the company develops a global subscriber base.”

The company added 17 million global subscribers in 2015, from 13 million in 2014, and Faber expects Netflix to add 21 million subs in 2016.

Related Link: Netflix Subscribers Should Be Solid This Quarter

Faber noted usage was increasing with average viewing per subscriber rising 12 percent in 2015 and the company’s share of the U.S. primetime broadband traffic rising from 35 percent to 37 percent.

“With Netflix's content spend guided to be up more than 40 percent this year, the company is now the largest non-sports buyer of content in the world,” Faber pointed out.

Pricing & International Opportunity

The analyst also believes that robust Q2/Q3 results would increase confidence in Netflix’s ability to use pricing as a means to drive future growth.

Faber also mentioned that an affordability analysis shows the company has penetrated only 9 percent of the addressable homes in the countries in which it has launched, with 19 percent penetration expected by 2020.

This suggests significant long-term opportunity for the company.