Can Netflix Conquer the World?

Netflix (NASDAQ: NFLX  ) has been a world beater in more ways than one lately. The stock itself is on fire, soaring nearly 30% in May alone. It's also on a tear in terms of signing up streaming video buffs overseas. It closed out its latest quarter with 12.7 million international subscribers, 78% ahead of where it was a year earlier. Growth should continue to be impressive with its expansion into continental Europe later this year.

It's against this backdrop of healthy international headway -- above and beyond its consistently growing domestic business -- that Oppenheimer & Co. analyst Jason Helfstein raised his price target on Netflix from $435 to $500 yesterday. The head-turning meat to his report is that he sees booming growth for Netflix overseas. He thinks it will close out the year with 17 million international subscribers by the end of this year and 70 million come 2020.

It's a bold number, assuming an annual compounded growth rate of 30% for Netflix in what promises to be a challenging marketplace overseas. However, based on broadband migration rates overseas is 70 million really that farfetched? Netflix estimates that in 2020 it will be available in markets covering nearly half of the roughly billion international broadband subscribers by then. Working the math based on the 489 million broadband accounts we're talking about 14% market penetration. That may not seem so crazy in light of Netflix's stateside success.

There were 88 million broadband subscribers in this country according to the 2012 census data, and Netflix has 35.7 million domestic subscribers. That's more than 40%. It may not be that juicy. The data ignores homes with dual Netflix accounts and members that may rely on free Wi-Fi to fuel their streams. However, that same logic naturally applies to the overseas push. Netflix won't need to be in play in 14% of international homes with broadband to hit 70 million.

It's still an ambitious goal. Unlike the U.S. -- and initial expansion markets Canada followed by Latin America and the Caribbean -- Netflix has entered into new territories with entrenched streaming options. It's often not even just one established player. More importantly the competition is often a local darling with deals in place for the content that's already popular in that country. 

Netflix could still have an edge. It costs money to offer a streaming service and despite heavy costs to break into new markets, there's still some overall economies of scale. Netflix is still losing money outside of the U.S., but the $35 million in contribution loss that it reported from its international operations is the smallest deficit that it has ever reported. Once it turns profitable internationally, it will be easier to justify spending more money on game-changing territorial content. Yes, Oppenheimer's goals are aggressive, but Netflix has already defied the skeptics by getting this far so soon.

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