Netflix, Inc. (NFLX) Dominance Is Spreading to Europe
With Netflix, Inc. (Nasdaq: NFLX) stock already up another 85 percent so far in 2018, it's clear market expectations are high for Netflix in the years ahead. However, according to a new survey of U.S. and European markets, Netflix may be even better off than analysts had expected.
RBC Capital Markets recently surveyed more than 3,500 respondents in the U.S., Germany and France to check up on Netflix's penetration and performance. According to RBC analyst Mark Mahaney, Netflix's future is getting brighter by the day.
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RBC found 55 percent of U.S. respondents watch Netflix, up from 53 percent a year ago. On top of its impressive penetration rate, 68 percent of Netflix customers report being either "satisfied" or "very satisfied" with the service. Mahaney says this satisfaction rate has remained mostly flat over the past year. A relatively high 84 percent of Netflix subscribers say they are "not at all likely" or "slightly likely" to cancel within the next three months.
Perhaps the most impressive metric for Netflix investors is that 55 percent of U.S. respondents say Netflix's content has improved over the past year compared to only 7 percent who say it has worsened. Netflix plans to spend a record $8 billion on content in 2018.
Netflix's European survey indicates Europeans are opening up to the idea of paying for an over-the-top streaming service. More than half (52 percent) of French respondents and 47 percent of German respondents said they are likely to pay for streaming content, up from just 39 percent and 29 percent a year ago. Netflix hasn't quite reached U.S. penetration rates in France or Germany, but it's clearly catching on. French penetration rate climbed from 21 percent to 37 percent, and German penetration rate jumped from 17 percent to 35 percent.
Based on the survey results, Mahaney has raised RBC's long-term subscriber and revenue targets for Netflix. RBC is now projecting between 235 million and 265 million global subscribers by 2022, which includes a 70 percent penetration rate of U.S. broadband households and a 30 percent penetration rate of international households.
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"By 2022, we believe NFLX can generate an [average revenue per user] of $12 to $14. And by 2022, we believe NFLX can achieve operating margins of 25 to 30 percent," Mahaney says.
RBC has an "outperform" rating and $360 price target for NFLX stock.
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