Netflix's U.S. Opportunity Is Larger Than Initially Thought

Netflix Inc NFLX has been one of the strongest performers in the market in 2015, but according to a new report by Stifel analyst Scott Devitt, Netflix shareholders have plenty more returns to look forward to.

In the report, Devitt explains why Stifel is raising its target price for the streaming video giant to $143.

Domestic Potential

While much of the attention surrounding Netflix in recent months has centered on its international expansion potential, Devitt believes that the company’s potential for domestic growth has been underestimated.

Stifel sees Netflix’s brand becoming “synonymous with digital video streaming” in the same way that Amazon.com Inc AMZN is synonymous with e-commerce and Google Inc GOOG GOOGL is synonymous with search.

Devitt compares Netflix to other “industry-changing video technology” such as cable TV, VCRs and DVDs, each of which eventually reached about 90 percent penetration rates in the U.S.

Mass Adoption

Stifel calls Netflix’s $8.99 streaming service “the best value in paid content of any kind,” and Devitt believes that the company will be able to “sign up a majority of the households in its addressable market” within the next decade. He adds that he believes that Netflix’s service is a better value than cable TV, VCRs or DVDs and that there is less distribution friction for Netflix compared to the other technologies.

Outlook

Stifel is now calling for a 75 percent U.S. household penetration rate for Netflix in the long-term. The firm is predicting that Netflix will be able to add 5-6 million domestic subscribers annually through 2018.

Devitt names competition, shifting subscriber trends and rising broadband and content costs as risks for Netflix.