Netflix, Inc. will lead the new media era

Netflix, Inc. (Nasdaq: NFLX) gained another 2.2 percent on Thursday after Barclays said Netflix could grow to become the second biggest media company in the world within three years. Even with the stock up more than 1,450 percent in the past five years, Barclays analyst Kannan Venkateshwar says it's not too late for investors to hop aboard the Netflix train.

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According to Venkateshwar, Netflix's growth comes down to two numbers – content cost and subscriber growth. If Netflix can continue to grow its subscriber count at a faster rate than its content costs, NFLX stock will likely continue to outperform.

[See: 7 of the Best Stocks to Buy for 2018.]

Venkateshwar says Netflix's total addressable global market size could reach 185 million by 2025, and Netflix could add an additional 53 million international subscribers over the next three years.

At the same time, Netflix will continue to spend aggressively to beef up its content library. Venkateshwar says Netflix will spend between $10 billion and $12 billion on content in 2018. Barclays estimates are even higher than Bank of America's $8 billion estimate earlier this week.

Salaries of employees at 25 top tech companies:

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Salaries of employees at 25 top tech companies
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Salaries of employees at 25 top tech companies

Google

Average annual bonus: $32,478

Average sign-on bonus: $27,547

Average annual base salary: $136,000

Netflix

Average annual bonus: $0

Average sign-on bonus: $3,520

Average annual base salary: $206,000

Twitter

Average annual bonus: $120

Average sign-on bonus: $26,144

Average annual base salary: $149,000

Apple

Average annual bonus: $20,298

Average sign-on bonus: $27,201

Average annual base salary: $102,000

Facebook

Average annual bonus: $33,225

Average sign-on bonus: $45,708

Average annual base salary: $145,000

Oculus VR

Average annual bonus: $395

Average sign-on bonus: $6,926

Average annual base salary: $119,000

Amazon

Average annual bonus: $24,732

Average sign-on bonus: $41,340

Average annual base salary: $118,000

Square

Average annual bonus: $988

Average sign-on bonus: $17,996

Average annual base salary: $134,000

Uber

Average annual bonus: $31,633

Average sign-on bonus: $1,807

Average annual base salary: $117,000

Pinterest 

Average annual bonus: $4,374

Average sign-on bonus: $33,376

Average annual base salary: $151,000

Tesla

Average annual bonus: $4,779

Average sign-on bonus: $19,447

Average annual base salary: $105,000

UnitedHealth Group

Average annual bonus: $7,280

Average sign-on bonus: $118

Average annual base salary: $87,000

Snap Inc.

Average annual bonus: $10,588

Average sign-on bonus: $23,705

Average annual base salary: $127,000

Hewlett Packard Enterprise Co.

Average annual bonus: $10,756

Average sign-on bonus: $8,265

Average annual base salary: $131,000

CSRA

Average annual bonus: $13,732

Average sign-on bonus: $1,186

Average annual base salary: $100,000

credit: Facebook

Capital One

Average annual bonus: $15,114

Average sign-on bonus: $8,568

Average annual base salary: $107,000

Fitbit

Average annual bonus: $18,069

Average sign-on bonus: $25,459

Average annual base salary: $128,000

Pandora

Average annual bonus: $22,316

Average sign-on bonus: $18,886

Average annual base salary: $109,000

Microsoft 

Average annual bonus: $23,224

Average sign-on bonus: $20,191

Average annual base salary: $179,000

Airbnb

Average annual bonus: $23,250

Average sign-on bonus: $23,250

Average annual base salary: $124,000

Arista Networks

Average annual bonus: $27,497

Average sign-on bonus: $18,652

Average annual base salary: $151,000

credit: Facebook

Linkedin

Average annual bonus: $32,216

Average sign-on bonus: $25,418

Average annual base salary: $149,000

Dropbox

Average annual bonus: $32,707

Average sign-on bonus: $32,833

Average annual base salary: $144,000

VMware

Average annual bonus: $33,145

Average sign-on bonus: $18,851

Average annual base salary: $147,000

Salesforce

Average annual bonus: $39,959

Average sign-on bonus: $28,314

Average annual base salary: $142,000

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Despite rising costs, Venkateshwar says Netflix will likely maintain a large degree of pricing power, even in the face of new services from Walt Disney Co. (DIS) and other streaming competitors. He says customer inertia is the single largest component of media pricing power, and the cord-cutting generation of Netflix customers now see Netflix as a must-have subscription.

"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," Venkateshwar says. "In our opinion, in the next three to five years Netflix is likely to become the second biggest media company by revenue, ignoring studios and theme parks, next only to Disney."

Still, not everyone on Wall Street is convinced that Netflix stock has significant upside. Citi analyst Mark May says much of Netflix's long-term growth potential is already priced into the stock.

[See: 7 of the Best Tech Stocks to Buy for 2018.]

"Given that NFLX's valuation appears to already largely reflect the long-term bull-case assumptions and that competition appears to be rising, we maintain a 'neutral' rating but continue to generally have a positive view of Netflix's fundamentals," May says.

Barclays has an "outperform" rating and $245 price target for NFLX stock.

Copyright 2017 U.S. News & World Report

 

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