July 16, 2015 / 11:40 AM / in 2 years

Netflix seen adding more viewers with strong content, new markets

(Reuters) - Netflix Inc’s accelerating subscriber growth signals the video streaming service has much more room to expand, with some analysts seeing it tripling its subscribers to 200 million within a few years, driven by international expansion.

An illustration photo shows the logo of Netflix the American provider of on-demand Internet streaming media in Paris September 15, 2014. REUTERS/Gonzalo Fuentes

Shares of the maker of “House of Cards” and “Orange is the New Black” jumped as much as 16.4 percent to a record high of $114.19 in early trading on Thursday, after the company reported its global subscriber base had grown to more than 65 million, beating its own forecast.

“Netflix is accelerating away from (the) competition,” said Pacific Crest analysts, who rate the stock “overweight” with a price target of $122, compared with Wednesday’s close of $98.13.

The pace of new subscriber sign-ups almost doubled to 3.3 million in the second quarter, driven by a strong slate of original content, such as “Sense8” and “Daredevil”, and Netflix’s launch in Australia and New Zealand.

At least 19 brokerages raised their price target on the stock. Pivotal Research was the most bullish with a price target of $155 - about 58 percent higher than the stock’s Wednesday close.

The stock has been on a tear - through Wednesday’s close it had more than doubled this year and is just shy of hitting analysts’ median price target of $103.57.

Netflix is aggressively expanding into new markets and plans to reach almost every country in the world by the end of next year. Next up is Japan this quarter, with Spain, Italy and Portugal to follow later in the year.

The company said it expects to sign up 5-6 million subscribers this year and next, but many analysts saw that as too conservative -- even though it has yet to work out how to crack the Chinese market.

Cowen and Co analysts forecast global subscriber numbers of nearly 174 million by 2020. Pivotal Research analysts see Netflix topping 200 million users by 2021.

“Our thesis borrows from Sinatra: if they could make it here (in the US – the most competitive market), they could make it anywhere,” said Nomura’s Kevin Rippey, who has a “buy” rating on the stock.

Borrowing a baseball analogy, RBC Capital Markets analyst Mark Mahaney said accelerating subscriber additions suggest “we’re only in the 4th or 5th inning.”

Mahaney, who rates the stock “outperform” and raised his price target to $125 from $100, also pointed to rising U.S. gross margins as an important positive for Netflix.

Netflix, which has over 42 million subscribers in the United States, said it added 2.4 million international subscribers and 900,000 U.S. subscribers during the second quarter.

Of 42 analysts covering the stock, 23 rate the stock “buy” or its equivalent rating, 15 rate it “hold,” and 4 rate it a “sell” or equivalent rating, according to Thomson Reuters data.

Additional reporting by Lehar Maan in Bengaluru; Editing by Saumyadeb Chakrabarty

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