Netflix Subscriptions: How High Will It Go By 2013?

NEW YORK (TheStreet) -- Netflix(NFLX) received an upgrade on Monday from Citi, which said the movie rental firm will hit 50 million subscribers by 2013. But can Netflix sustain enough momentum to actually reach that mark?

The company hit 23.6 million subscribers at the end of March, with 22.8 million of these users coming from the U.S. In its first quarter, Netflix added 3.3 million new domestic subscribers and now boasts more subscribers than any other video service in the U.S.

Netflix foresees subscribers growing to 24.9 million to 25.9 million by the end of the second quarter.

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The driving force behind Netflix's subscriber growth has been its aggressive expansion of streaming content. The company has struck up several deals with media companies to grow its digital portfolio.

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While this has sparked interest for potential subscribers, it has made investors jittery regarding content costs. Netflix issued a lower-than-expected second-quarter forecast last week, which also contributed to these fears.

Regardless of this potential red flag, analyst Mark Mahaney lifted his rating on the stock to buy from hold on Monday, citing Netflix's presence in nearly 21% of U.S. households.

"But what is more telling is [Netflix is] seeing its penetration rates accelerate," he wrote in a note to investors.

While in the past Mahaney has refrained from going so far as to recommend buying the stock, he now considers Netflix a "core holding" in the Internet sector. Mahaney's initial reservations stemmed from the uncertainty surrounding the sustainability of Netflix's growth, its U.S. profit margin potential, international expansion and high valuation.

But Mahaney does acknowledge that his 50 million subscriber estimate is lofty and seemingly aggressive. Nonetheless, he believes it is achievable, especially since he thinks risks from competitors like Amazon(AMZN), and Google(GOOG) have been overblown.