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Source: Netflix.

Shares of Netflix (NASDAQ:NFLX), the kingpin of streaming movie and television show content, surged a whopping $27.01 per share on Monday, or 4% based on data from S&P Capital IQ, after receiving a price target adjustment from Goldman Sachs.

According to the research note put out by Goldman's covering analyst, Heath Terry, Netflix is poised to grow its streaming video market substantially around the world in the coming few years. In terms of specifics, Terry had this to say:

We estimate that Netflix's international addressable market will more than double to 460 million by 2020 as Netflix expands and the distribution ecosystem continues to grow. With 24% penetration globally by 2020, Netflix could reach 112 million international [subscriptions] vs. 21 million in 1Q15, while the domestic market reaches 65% household penetration or 69 million subs vs. 41 million in 1Q15.

All told, Terry is forecasting approximately 182 million subscribers by 2020, with average revenue per subscriber of $9.33. Based on a projected "contribution margin" of 22%, Terry believes Netflix can get to $780 per share. Goldman's prior target on Netflix was $620.

But just for kicks, Terry also notes that if Netflix were to get its contribution margin up into the rarified territory of pay-per-view media channels such as HBO, which sits at nearly 40%, then Netflix could be worth as much as $1,360 per share!

What investors have to ask themselves here is whether or not Goldman's thesis holds water. In other words, even after a $27 spike on Monday, can Netflix motor another 10% higher (or more) on the heels of international subscription growth?

Images

Source: Flickr user Matthew Keys.

My personal answer is that it's tough to say. Netflix has undeniable appeal among American households and there was little pushback when it raised its prices (which I felt was long overdue). It also has the premier movie and TV show library among paid streaming services. With its overseas market largely untapped, there are certainly reasons to believe that Terry's 112 million subscriber estimate is very attainable.

But on the flipside, we have to wonder if Netflix's bullish outlook is already baked into its share price. Amazon.com, Hulu, and Apple are all viable competitors, and with Apple and Amazon's deep pockets and well-respected brand-names, they pose genuine threats to Netflix's long-term dominance.

There are also valuation concerns looking down the road to 2018. It could be four more years before Netflix's astronomical P/E ratio falls below 50, all while its domestic sales begin to slow due to saturation. Valuation alone isn't going to doom Netflix by any means, but it could contain the  stock's potential upside.

Overall, I'd say its prospects for the long-term look intriguing, but it doesn't present the exceptional value that I'd be looking for as an investment right now.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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