Can

Netflix

(NFLX) - Get Report

repeat its domestic success in international markets?

During the subscription video company's recent earnings call, management announced plans to test a streaming video service for Canadian customers.

We think international expansion could boost the stock substantially. We believe that the Canadian market alone has the potential to add at least another 10% to our $85.26 stock price estimate for Netflix. Our analysis follows below.

We currently expect Netflix's subscriber base to reach 40 million by the end of the Trefis forecast period. However, subscriber growth could exceed our forecast significantly if Netflix succeeds in Canada and other international markets, albeit at the expense of lower average subscription fees.

The reduced fees will result from the company's limited online catalog and the lower cost of streaming compared to physical DVD delivery; Netflix is likely to pass these savings on to customers.

You can drag the trend-line in the chart below to create your own subscriber forecast for Netflix and see how it impacts the company's stock price.

In the U.S., Netflix distributes video content via physical DVD rentals and online streaming. This dual model provides value and convenience to its customers. And while streaming is easier and cheaper than shipping DVD's through the mail, most new releases are available only on DVD.

So the challenge of offering a streaming-only service, as in Canada, is that Netflix's online library consists mainly of older movies and TV shows.

That said, Netflix is working hard to update its streaming catalogue via digital distribution deals with content providers like Relativity Media and Epix.

As Netflix expands internationally, it is likely to face competition from established local video distributors such as Europe's Lovefilm service.

Although Lovefilm is smaller than Netflix, it offers similar services and is likely to offer stiff competition if Netflix tries to enter the European market. Lovefilm is also beefing up its online delivery technology, just as Netflix has done in the U.S.

If it wishes to thrive overseas, Netflix may also need to add video content that appeals to specific international audiences. The company acknowledges the challenge of acquiring the right content at the right price.

Unfavorable Internet service provider (ISP) policies could also hinder Netflix's digital strategy overseas. After Netflix announced its new Canadian streaming service, for example, one of the Canada's largest ISPs, Roger Communications lowered the data caps on its plans.

You can see the complete $85.26 Trefis price estimates for Netflix's stock

here .

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