Netflix And Its 'Unstoppable Lead' In Internet TV

Brean Capital’s Alan Gould believes that Netflix, Inc. NFLX has created “an unstoppable lead in the internet TV business and is positioned to dominate the business long term.”

Gould initiated coverage on the company with a Buy rating and price target of $145.

Largest Spender

The analyst thinks Netflix is on its way to becoming the “largest spender” on entertainment content. However, its direct-to-consumer audience across the world would make the company a low-cost producer.

Gould believes that 15 years out, the company could attract 300 million global subscribers, generating ARPU of $19, with EBIT margin of 29 percent and EPS of more than $25.

“We project NFLX will be spending $15 billion per year on content in 5 years and $25 billion annually in ten years,” the analyst stated.

In fact, Netflix is predicted to have 7.59 million subscribers in the Asia Pacific region alone by 2021, from the 3.17 million at the end of 2016.

Business Model

According to the Brean Capital report, “The business model has tremendous flexibility allowing management to balance long-term subscriber growth vs. near-term profits.”

Following the almost 27 percent appreciation in the stock through October, Netflix has been weak since the U.S. presidential election, given the portfolio rotation into cyclicals, while increased interest rates would drive lower discounts.