Netflix could drop 15%, but it’s a buy: Analyst

Published Wed, Jan 14 201510:01 AM EST

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

A possible big drop in Netflix's share price after its earnings next Tuesday would be a buying opportunity as the video streaming service moves to the global stage, an analyst for Stifel said in a report. Stifel on Tuesday upgraded the stock to "buy" despite the risk of a selloff. "We believe another miss on subscriber estimates may cause shares to drop another 10%-15% and will likely heighten investor's perception and discussion of competitive risk," analyst Scott W. Devitt said. "However, we believe there is a positive risk-to-reward ratio at this time given reset expectations, an exciting content cycle for 2015, and international growth opportunities." He's returning Netflix to a "buy" after downgrading it in November to a "hold" leaves the price target of $380 unchanged. That's still an upside of 17 percent from Tuesday's close of $323.79. Stifel expects Netflix to say domestic subscribers increased by 1.8 million last quarter, fewer than a 2.3 million addition in the same quarter a year ago. International adds will total 2.1 million. The analyst is in line with the Street consensus for a total of 57.1 million subscribers for the service at the end of last year, but cautions the company could disappoint on this figure. Read More Apple to return $200 billion to holders: Analyst "Netflix is transitioning from a highly penetrated, very profitable domestic streaming led business to one where growth is led by international subscribers," the note said. "As such, investors have been hyper focused on domestic and international subscriber net adds over the past few quarters, which have disappointed." Netflix began expanding out of the United States in 2010 and most recently entered Western Europe in September. It's expected to launch in Australia and New Zealand in March. The expansion could add 46 million households from the 325 million in the areas with a Netflix presence, Devitt said. Most importantly, that market gain would include 27 million households with broadband service. International subscribers are expected to surpass domestic subscribers within six years, pushing the total number of global subscribers to 100 million, he said. Devitt also highlighted opportunities in Netflix's growing in-house video production, making its stock cheap compared to direct competitors in traditional media companies. Netflix said on its website that it currently has more than 53 million subscribers in nearly 50 countries. Disclaimer

The Netflix logo displayed on an iPhone 5s.

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Stifel on Tuesday upgraded the stock to "buy" despite the risk of a selloff.