Wall Street's favorite momentum stock, Netflix (NFLX), has been on an unprecedented upward tear. The company’s share price recently broke its all-time high, peaking at $704 as of yesterday's close. Over the past week, shares of Netflix settled around $675, having more than doubled since its 52-week low of $315.54; Netflix is also well above its 50-day moving average of $617.96. As such, numerous analyst upgrades, each with a higher price target than the next, suggest Netflix will hold above $700 in the coming weeks, and continue its run from there.
One of the more “conservative” PT upgrades came from Oppenheimer, which raised its price target from $610 to $775. The analyst firm cited Netflix’s strong broadband penetration rate, which represents current Internet subscription rates in America, Canada, Britain, Ireland, and Brazil, as the main growth catalyst. Presently at 30%, and predicted to increase to 32% by 2020, Netflix's global household broadband subscriptions are expected to reach nearly 1 billion by 2020.
Netflix shares are up more than 40% this year and fans are eager for the return of Frank Underwood and House of Cards. But does Netflix need more hits to justify its price?
According to David Seaburg, head of sales trading at Cowen and Company, a $775 price target is far too low an estimate. In fact, Seaburg predicts that Netflix is well on its way to $1400 in the next five years. That said, what will fuel Netflix’s incredible price increase? For Seaburg, international growth is key. Netflix already has over 62 million subscribers in over 50 countries, and both figures are constantly increasing. Hence, Seaburg assumes Netflix will expand to 200 countries by 2020 and gain 100 million subscribers.
Netflix is reportedly in talks with Chinese firms as it looks to move into the market there. " Subscribe to CNBC: http://cnb.cx/SubscribeCNBC About CNBC: From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.
However, Netflix’s global domination is not absolute. The company currently faces increased competition from larger companies like Amazon (AMZN) and HBO (TWX), which continue to improve and expand their video streaming services. Moreover, Alibaba (BABA) recently announced that it will focus on developing a domestic Chinese video streaming platform. Currently the world's third largest entertainment market, and with an emerging middle class, Chinese markets are set to grow much larger. As such, Alibaba will champion its national brand awareness in an effort to challenge Netflix.
June 15 -- Alibaba is creating China's version of Netflix and HBO. The e-commerce giant has announced a new online video service as it tries to target 600-million families craving more entertainment content. Bloomberg's Yvonne Man reports on "First Up."
Nevertheless, despite increased competition, Netflix remains a leading service provider. Due to its size, Netflix can offer streaming services at lower prices than those of its competitors. In effect, as Netflix expands into other countries, not only will its service be the most diverse, but it will also be highly affordable. Thus, Netflix will adapt well to whichever markets its executives pinpoint for expansion.