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.



) --We have revised our price target for


(NFLX) - Get Report

based on several recent significant developments, including the company's push into Latin America and its emphasis on streaming.

The new price target is $221

, up from $150 and around 15% below the market price, and represents a marked change in our thinking.

Despite our optimistic view of the company, the market is still under appreciating competitive threats from



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iTunes, Hulu and



(DISH) - Get Report

Blockbuster as well as video on demand offerings from pay-TV providers like


(CMCSA) - Get Report


Time Warner Cable


and others. However we are encouraged by the growth and outlook for its streaming business, which supports our revised forecast.

In addition to the price revision, we have updated our valuation model to better reflect the contribution of international growth, which we peg at around 30% of Netflix's overall stock value. Previously we accounted for international growth in our total subscriber estimates.

Higher Subscriber Growth Forecast

Compared to our previous estimates, we now expect Netflix to gain a larger number of subscribers over our forecast period. We expect that in the next seven to eight years, Netflix's subscriber base in the U.S. will reach to close to 50 million subscribers. During the same time-period, we forecast its international subscriber count to reach past 20 million.

Here are a few points briefly as to why we think these targets may be achievable.

  • Although Netflix's subscriber growth declined sequentially, we believe some of this is due to seasonality and fits a pattern that was observed last year as well. We also acknowledge Netflix's low subscriber gain expectations for the third quarter. However, the company is confident that growth will resume in the fourth quarter, which we include in our estimates.
  • In the second quarter, 75% of new subscribers signed up for streaming-only plans. This not only shows the increased demand of streaming content but also demonstrates that recent price hikes for its hybrid plans may not pose much risk to its overall value since subscribers are opting for streaming-only plans.
  • Netflix's Canada success has influenced our views. Although we have some reservations regarding its prospects in Latin America, we acknowledge that Netflix will take advantage of low competition in this region and expand. In addition, there is possible expansion into other overseas in Europe and Asia over the the next seven to eight years.
  • Observed shift to streaming will allow Netflix to save costs on DVDs and invest heavily in streaming content which will further fuel customer growth in the U.S. and international markets. Competition in this area hasn't caught up yet.

Lower Mix of DVD-Related Costs Expected

GRecent disclosures indicate that most subscribers are heading for streaming-only option. In fact Netflix stated that hybrid subscribers (DVD+streaming) declined in the second quarter, an indication that some of these subscribers may have shifted to streaming plans. In addition, recent price changes imply a 60% hike for hybrid customers who either leave Netflix altogether or shift to either streaming-only or DVD-only plans.

Whichever the case, Netflix's DVD-related costs such as revenue sharing costs and DVD-shipment center costs will decline as a proportion of revenues. However Netflix will utilize these savings to boost streaming offerings by spending more on content acquisition.

The second-quarter results also imply that SG&A leverage is significant due to expansion of subscriber base and therefore this figure is expected to decline as well (as proportion of revenues).

See our complete analysis for Netflix's stock


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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.