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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



) --A recent article in


cited a


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forecast by Citigroup analyst Mark Mahaney who predicted the company's subscriber base will pass 50 million by 2013.

This rosy forecast implies around 25% upside to our current stock price estimate of $153 for Netflix, which would still put it around 20% below the current market price.

By our estimates, subscriber growth needs to rise to near 70 million by 2013 and maintain that trend to reach the current market price. We think this is unlikely given that competition should intensify over time. Tech giant


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announced plans to launch a paid streaming service via YouTube and Android-based devices and


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has plans to move into streaming.

While we agree with some of the underlying points made in Mahaney's forecast, our forecast remains on the conservative side due to our doubts regarding competition. So far competition has not slowed Netflix, although we cannot discard that possibility that it could happen in the next two to three years.

Nevertheless, we provide a unique way to understand how different expectations and events can potentially impact a stock by looking at scenarios. If we adjust the chart below to 50 million subscribers by 2013, and leave the trend line in place, this implies Netflix will hit 75 million by end of our forecast period and a new price estimate of around $200.

The number of subscribers is the most important stock driver for Netflix, accounting for its price jump. Furthermore as most of the new subscribers use streaming services, we should see a faster decline in DVD shipped per subscriber and resulting lower costs per user in our model.

However with the stock price around $240, even these optimistic subscriber growth numbers fail to justify the current stock price. If we increased subscriber growth to around 100 million by the end of our forecast period, this would imply a price estimate roughly in line with the current market price. This suggests that subscriber growth would need to continue, and much of this likely needs to come from new international markets.

See our complete analysis for Netflix's stock


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