If you didn’t catch the bull run of Netflix, Inc. (NASDAQ:NFLX) stock last year, don’t worry. One of the top major research houses just said Netflix stock could go up by 40%.
Piper Jaffray upgraded NFLX stock from “Neutral” to “Overweight” with a price target of $122.00 per share. That is 43% higher than what the stock was trading at on Friday morning. (Source: “Netflix Stock Value Too Compelling to Pass Up, Piper Jaffray Says,” Investors.com, February 2, 2016.)
The upgrade was based on the growth potential of Netflix’s subscriber base. Piper Jaffray believes that by 2020, Netflix could reach 142 million members globally. Of that total, 62.5 million would be from the U.S., with the remaining coming internationally.
Netflix reached 75 million subscribers on January 1, 2016. The company added 17 million members in 2015 and is expecting another six million additions in the current quarter. (Source: “Q4 15 Letter to Shareholders,” Netflix, Inc., January 19, 2016.)
Recent weeks haven’t been nice to NFLX stock investors. Since entering 2016, Netflix stock is down 25.4%. Analysts at Piper Jaffray thinks this could be a good entry point.
“Our consistent commentary on Netflix has been that it is a volatile name and while we expect the general trend to be ‘up and to the right,’ we also expect periodic pullbacks and would look to take advantage of attractive entry points,” said Michael Olson, analyst at Piper Jaffray. “We believe this is one of those opportunities.”
Note that the Minneapolis-based investment bank is not the only one bullish on Netflix’s user growth. Back in November, RBC Capital Markets said that the company’s long-term international penetration level could be around 30%. This implies that Netflix could reach around 200 million global subscribers.
Mark Mahaney, analyst at RBC, had an even higher price target. Based on $11.00 of average revenue per user and a 30% operating margin, Mahaney argues Netflix’s earnings per share (EPS) could reach $10.00 or more. With a market premium price-to-earnings (P/E) multiple of 20, Mahaney believes that NFLX stock could reach $200.00 within the next three to five years. (Source: “RBC Capital Pounds the Table on Netflix, Inc.,” Smarter Analyst, November 20, 2015.)
Can Netflix’s stock price really reach those levels? Well, only time will tell.