It's apparently OK for investors to warm up to Netflix
Credit Suisse upgraded shares of the leading movie rental provider today, as analyst John Blackledge argues that near-term challengers aren't menacing competitive threats and that the international expansion potential is huge.
Blackledge's upgrade -- from "Neutral" to "Outperform" -- is accompanied by a sharp price target hike, coming off his now dated $180 mark by targeting a $280 price point.
Netflix has already revealed that it will enter at least one new international market after last year's successful rollout of a "streaming only" service in Canada. Blackledge believes that Netflix will enter one major global market every year through at least 2016.
He sees a whopping 33 million subscribers by the end of this year, more than doubling to 69 million by the end of 2016.
These are pretty aggressive assumptions. Netflix closed out 2010 with 20 million subscribers after nabbing 7.7 million net additions.
If Blackledge's couch potato target holds up, Netflix will top niche leaders Comcast
He sees Netflix earning $5.16 a share on $3.3 billion in revenue this year, placing his profit estimate at the top of the 25 major analysts modeling the flick giant.
Historically speaking, this has been the right place to be. Netflix has routinely smoked past Wall Street's income estimates.
The Other Guys
Is Blackledge underestimating the power of potential disruptors?
Netflix's rivals are no longer phoning it in. Time Warner Cable
All of these events have transpired over the past few weeks, leaving a mark on Netflix. The shares have handily beaten the market so far in 2011, but they closed yesterday at a 14% discount to last month's all-time high.
Netflix is no longer battling complacent cable and satellite television providers. They're responding to the cord-cutting. Digital marketplaces are no longer in denial when it comes to selling piecemeal rentals. They're rolling up their sleeves and launching Netflix-esque online smorgasbords.
Battle: Los Angeles
Blackledge isn't worried. He realizes that Netflix is going to have to pay a lot of money to stay on top in the future. It will be able to afford it.
Blackledge sees Netflix generating $7 billion in revenue by 2016, managing higher operating margins despite shelling out $3 billion in streaming content costs.
Can I get a show of hands of the cable, satellite, and e-tailers willing to match Netflix streaming dollar for streaming dollar? I didn't think so. This is the one thing that cynical bears are forgetting. Content creators aren't going to be happy with Netflix calling the shots, but are the studios proud enough to forgo billions in annual content-licensing revenue?
Netflix's push into original content with last week's House of Cards announcement makes it clear that it's now competing with HBO and any cable channel cranking out original content.
The evolutionary step is going to split studios into two factions. On one hand, you'll have the opportunistic studios that get paid well to crack open their vaults for Netflix streaming. On the other, you'll have the apprehensive outfits that will hold out for ridiculous ransoms that they'll never get as they hitch their content to dying models.
Do you really want to be on the non-Netflix side of this Hollywood battle?
Credit Suisse is lining up on the winning side. Where are you?
Do you think Netflix can still be taken down by the competition or is it too late? Share your thoughts in the comment box below.
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Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.