Why Netflix's International Bet Will Pay Off For Investors

NEW YORK (TheStreet) - Netflix's (NFLX) bet that even international subscribers will want to watch House of Cards is likely to pay off, according to JPMorgan Chase analyst Doug Anmuth.

Anmuth reiterated his "overweight" rating on the stock in a research note to clients on Thursday where he suggested that the streaming service's international opportunities are strong. Anmuth has a $500 price target for Netflix.

"We're increasingly confident in our Netflix international subscriber estimates as our bottom-up work suggests Netflix is likely to continue witnessing strong penetration internationally," Anmuth writes in a research note to clients in which he reiterates his "overweight" rating. The analyst estimates that Netflix's international market opportunity could be approximately 100 million broadband subscriptions. The company had approximately 10.5% penetration of this market at the end of 2013, he writes.

"We expect the late 2014 expansion in Western Europe to increase Netflix's international opportunity by ~60-70M broadband households," Anmuth wrote. "We believe Netflix is well-positioned to grow its penetration in Western Europe based on its broad content selection and merchandising, originals, and marketing capabilities."

By the end of 2015, Anmuth estimates Netflix's international subscribers will total 24.5 million -- roughly double its current international subscriber base -- and total 31.6 million at the end 2016.

Additionally, he's expecting "similar adoption curves in the UK/Ireland and Nordics, though we're conservatively modeling slightly slower adoption in the 2014 Europe expansion countries," Anmuth stated. "We expect Netflix to have ~5M and 8M subscribers in new European markets at the end of 2015 and 2016 respectively."

Netflix's CEO Reed Hastings said in an April letter to shareholders that the Los Gatos, Calif.-based company added 1.75 million international subscribers in the first-quarter, bringing its total to 12.7 million members.

"Due to rapid growth in our international segment we aren't experiencing the same level of seasonality as in the U.S., and we anticipate over 50% y/y growth in Q2 net additions despite slight headwinds from the World Cup," Hastings said in the letter, which coincided with first-quarter earnings.

Netflix's overall domestic streaming subscriber total topped 35 million in the quarter. Hastings has repeatedly said that Netflix's total addressable market in the U.S. is between 60 and 90 million households, but throughout the world, it's "everyone who loves TV and has the Internet," he said during the first quarter conference call.

Netflix has seen wide success with its original content series, most notably House of Cards and Orange is the New Black. The streaming service is looking to add more original content, specifically for children. Creating original content is one reason why Netflix decided to raise its prices for new subscribers. It will now charge new customers a monthly fee of $8.99 in the U.S., while existing customers will stay at the $7.99 price for a period of two years.

"While we acknowledge Netflix's international expansion does come with some competitive risk, we believe the company has a strong track record of entering new markets with significant competition, such as the UK," Anmuth penned in the note. "We're confident Netflix can demonstrate meaningful penetration in international markets given the company's strong slate of existing and upcoming originals, breadth of catalog content, and the ability to effectively market its service and content to new and existing customers."

Shares of Netflix were falling 0.36% to $421.70 on Thursday.

--Written by Laurie Kulikowski in New York.

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