NEW YORK (TheStreet) --RBC managing director Mark Mahaney joined CNBC's "Squawk on the Street" on Monday to explain three reasons why the streaming giant Netflix (NFLX) - Get Netflix, Inc. (NFLX) Report is one of his top stock picks.
One, an abating of the churn challenges, according to RBC quarterly testing in the U.S. Second, RBC survey results indicate less of a threat from Amazon.com's (AMZN) Amazon Prime than the market had initially perceived. Third, financial markets seem to be underappreciating Netflix's potential outside the U.S.
Mahaney currently has an "outperform" rating on the stock with a price target of $130.
Additionally, because Netflix's 25% price increase has largely been in effect the past 3-6 months, Mahaney feels as if "you've got the worst of the pricing pressure behind you."
Regarding future pricing pressures Netflix faces as streaming competition ramps up, he believes it has the perfect solution, original content.
"This company is spending $5 billion-$6 billion this year, only about a billion on original content. What this company has to do is keep building out its value proposition. We think they have pricing power. When all is said and done, they did implement a 25% price increase, but they did grow subs. Not too many companies can do that," Mahaney noted.
As Netflix continues to build out more original content they will in effect enhance the service for its users, thus drive future growth to their subscriber base, Mahaney explained.
Mahaney concluded by dissecting the target he has on Netflix.
"If you're willing to look out three years, we think this is one of the very few names in the large cap Internet space that can be a double. We think there's the ability here to generate $8-$10 in GAAP earnings by 2020. We think the market would put at least a 20 multiple on that, so that's the pathway to $160, $180, $200 stock price from today. That's why we like the stock right here, right now," Mahaney said.
Shares of Netflix were higher during mid-morning trading on Monday.
Separately, TheStreet Ratings rates Netflix as a "Hold" with a ratings score of "C+". The primary factors that have impacted TheStreet Ratings are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stock.
The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins and solid stock price performance. However, as a counter to these strengths,TheStreet Ratings also finds weaknesses including generally higher debt management risk, disappointing return on equity and weak operating cash flow.
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
You can view the full analysis from the report here: NFLX