Netflix bull makes case for stock doubling in 3 years

What's working, what's not: Mark Mahaney

Investors looking at internet stocks have the best chance to profit from Netflix, said Mark Mahaney, lead internet analyst at RBC Capital Markets.

"Amongst the FANG names, this is the one that's most underperformed," he told CNBC's "Squawk Box" on Thursday.

The term FANG stocks, coined by CNBC's Jim Cramer, refers to the online powerhouses Facebook, Amazon, Netflix, and Alphabet's Google.

So far this year, shares of the streaming video company were down 17 percent as of Wednesday's close at around $95 per share.

In 2016 trading, the big FANG winner has been Facebook, up 24 percent, followed by Amazon's near 17 percent advance and a 3.5 percent rise in Google-parent Alphabet.

With a $130 per share one-year price target on Netflix, Mahaney said the stock has lots of runway ahead.

"It could be a double in three years," he contended. "We think this thing can generate $10 in earnings [per share], GAAP earnings, by 2020. We think the market would put a 20 [price-earnings] multiple on something like this. We think it could be a $200 stock."

The double in the stock would track subscriber growth, Mahaney said. "We think it's going to double to be 150 to 160 million [global] subscribers in a couple of years."

But in reporting second-quarter earnings after-the-bell on July 18, Netflix issued subscriber growth numbers that were below estimates.

The company said it added 1.7 million subscribers during the quarter, below its own expectations of 2.5 million. Total global paid subscribers were just under 80 million.

One of the reasons for the softness, according to Netflix, was a misinterpretation of its April reminder to grandfathered-users that their two years at $7.99 per month would end in May, and go up to $9.99 per month.

"We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering," the company said in July's earnings statement. "Churn of members who were actually un­grandfathered is modest and conforms to our expectations."

The stock tanked 13 percent in the following trading session, despite better-than-expected Q2 earnings of 9 cents per share and in-line revenue of $2.11 billion. Since then, Netflix has recovered about 10 percent of those losses.

"If they can make sub numbers, there's a lot of upside movement in this stock. We still think they have pricing power," Mahaney said.

According to RBC research, he said: "About 50 percent of all U.S. broadband households are Netflix subscribers," while "70 percent of Amazon Prime customers are Netflix subscribers as well."

In addition to free shipping, Amazon Prime users, at $99 per year, get a number of other services for free, including Amazon streaming video.

"The biggest push back I probably get [is] ... isn't Amazon Prime going to dislocate, dislodge, destroy Netflix," Mahaney said. "[But] I don't think Amazon is a competitive threat."

Netflix is "about eight times bigger" than its closest competitor in terms of paid subscribers, he said. "The closest company would be Hulu, with about 10 million paid subscribers."

As television viewing evolves over the next 10 to 15 years, Mahaney sees the big content bundles from cable and satellite TV moving to what he calls "mini-bundles" at much lower prices.

"I think one of those five mini-bundles in the future will be Netflix," he said.

Disclosure: RBC Capital Markets makes a market in the securities of Netflix.

Disclosure: Comcast, which owns CNBC parent NBCUniversal, is a co-owner of Hulu.