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After a spectacular run in recent years, Netflix Inc. (Nasdaq: NFLX) stock is already up another 46 percent in January on the strength of blowout fourth-quarter subscriber growth numbers. Incredibly, even after the stock’s massive earnings spike, MKM Partners analyst Rob Sanderson says investors still aren’t fully appreciating Netflix’s growth potential.
Netflix reported a record 8.3 million new subscribers in the fourth quarter, well above its previous guidance of 6.3 million. But according to Sanderson, Netflix’s subscriber growth is nowhere close to peaking.
“While there is certainly a bullish sentiment surrounding the stock, we think that many investors still underestimate the Netflix story particularly with respect to the penetration opportunity around the world,” Sanderson says, according to MarketWatch.
Sanderson says Netflix still has years of record subscriber growth ahead before it reaches its full growth potential. Once investors realize just how large Netflix’s opportunity is, Sanderson says Netflix stock will experience another wave of buying.
“We think that continued subscriber growth momentum, both domestic and international will leade to a rethinking of earnings power,” Sanderson says.
Sanderson isn’t the only analyst impressed by Netflix’s huge quarter. GBH Insights head of technology research Daniel Ives says Netflix investors should have smooth sailing ahead, at least until Walt Disney Co. (DIS) launches its own streaming video service in 2019. Ives says fourth-quarter subscriber growth was even more impressive considering Netflix actually raised its prices in the quarter.
“While the Disney competition is on the horizon, Netflix showed with these results/guidance that the Netflix machine is showing no signs of slowing down,” Ives says.
In the meantime, Ives says Netflix has a wide competitive moat in streaming video. As its subscriber count and usage hours increase, Netflix is also expanding its valuable trove of user data that it can leverage to further monetize its customer base.
MKM has a “buy” rating for Netflix and has raised its price target from $245 to $320. GBH has a “highly attractive” rating for NFLX stock.
Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book “Beating Wall Street With Common Sense,” which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at email@example.com.