The bull case for Netflix is simple, analysts said. "If subscriber growth is faster than content cost growth over time, it could become one of the most successful media companies."
Netflix has the power to achieve just that given its global footprint and access to about 550 million broadband subscribers, its strong pricing power, an expanding content library, a focus on content and increasing "stickiness" with several seasons of original programs.
Netflix also has consumer inertia in its favor, Barclays wrote. "Inertia tends to benefit early movers and market leaders and is likely to help pricing growth and costs to potentially drive margin expansion over time."
These factors combine to drive customer lifetimes up and churn down, analysts added. As that happens, Netflix will become the second-largest media company by revenue over the next three to five years, falling only behind Disney.
There are challenges to achieving that title, though. Netflix is the market leader, which leaves a target on its back from the competition. Its bundling opportunities are limited because it isn't a "platform" company in the sense that Facebook Inc. (FB - Get Report) , Alphabet Inc. (GOOGL - Get Report) and Apple Inc. (AAPL - Get Report) are.
Plus, access to content and its price could represent challenges amid a changing media landscape peppered with mergers and local competitors in many large markets. And investing in the original content puts added strain on Netflix's free cash flow.
"But management vision and execution track record are meaningful offsets," analysts said. "While Netflix's building blocks are not unique, its success has derived from the way these blocks are combined."
Analysts at Barclays initiated their coverage of Netflix stock with an overweight rating paired with a target price of $245, representing about a 15% upside for shares from their Wednesday close. Netflix stock gained 2.24% in early trading on Thursday to $217.28.
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