Please ensure Javascript is enabled for purposes of website accessibility

International Growth Could Triple Netflix's Subscribers

By Danny Vena - May 22, 2018 at 9:35AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you think the company's global customer base is big now...just you wait.

Streaming provider Netflix (NFLX -0.90%) is undoubtedly one of the most successful growth stories in the technology realm. The company has exceeded 30% year-over-year growth in revenue in each of the last five quarters. Even more impressive is the company's subscriber growth, which has surpassed 19% in every quarter going all the way back to the end of 2012. Those additions have accelerated recently, growing an average of 24% over the past four quarters.

That growth has added up, with Netflix now boasting 125 million subscribers globally. As impressive as the number is, the company may just be getting started -- one analyst believes Netflix will continue its strong membership growth, with subscribers topping 360 million by 2030.

A smiling girl wearing headphones and looking at a tablet

Image source: Getty Images.

Just the beginning

Nat Schindler of Bank of America Merrill Lynch is reiterating his buy rating on Netflix, and raising his target price to $352. "We believe," he said, that "Netflix still has a considerable opportunity ahead if it can achieve reasonable penetration levels internationally. Netflix will face varying levels of competition, regulation, and economic conditions in each individual market it participates in, but its content scale should allow it to become the dominant streaming player in virtually all markets."

The analyst thinks Netflix can grow its customer numbers by 8% annually between now and 2030, which would result in a massive subscriber base of 360 million members. Schindler believes that Netflix will eventually achieve penetration in 35% of all broadband households worldwide, excluding China, "which we think is reasonable," he said. A review of the company's recent customer additions bears that out:

Metric

Q1 2018

Q4 2017

Q3 2017

Q2 2017

Total subscribers

125.00 million

117.58 million

109.25 million

103.95 million

Year-over-year growth

26.58%

25.35%

25.95%

24.97%

Data source: Netflix quarterly earnings releases.

If Netflix's growth continues at anything near the current rate, Schindler's estimates could be easily achievable.

The cost will be high

It's important to note that sometimes investors have followed Netflix customer additions to the exclusion of all else. Netflix plans to spend between $7.5 billion and $8 billion on original content this year, and expects its cash flow for 2018 to be in a range of negative $3 billion to negative $4 billion.

The company has taken on significant debt to finance its growing library of shows; even as its negative cash flow has grown, the investing community has judged Netflix solely on its ability to grow its already massive customer base.

Netflix has claimed that the company's cash burn is, in fact, a gauge of its success. According to Netflix CEO Reed Hastings: "The irony is the faster we grow, and the faster we grow owned originals, the more drawn on free cash flow that will be. ... In some senses the negative free cash flow will be an indicator of enormous success."

Seeing it from Netflix's perspective

Some are beginning to come around to that view. Moody's recently raised its credit rating on Netflix, based on the company's increasing revenue and expanding subscriber growth. Moody's analyst Neil Begley believes Netflix will exceed 200 million subscribers as early as 2021, and the company will be cash flow positive by 2022.

I don't think any die-hard Netflix bears are going to change their views based on the calculations of a couple of analysts. I also don't think that those that are sold on the company and its ongoing growth story will be convinced they're wrong.

That reminds me of the old adage: For those who believe, no explanation is necessary. For those who do not, no explanation is possible.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$189.14 (-0.90%) $-1.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.