After a sell-off cut its value by a third, Netflix represents one of the most compelling investments available in the internet space, according to Goldman Sachs.
The brokerage reiterated its buy rating on Netflix shares as well as its $400, 12-month price target, representing nearly 50 percent upside from the stock's close on Thursday. Goldman also added the internet video platform to its so-called "Conviction List," a hand-picked collection of stocks its analysts believe are more likely than others to deliver meaningful upside.
"With Netflix shares down 36 percent since record highs in July, and the S&P 500 down 10 percent over the same period, we believe Netflix represents one of the best risk/reward propositions in the Internet sector," analyst Heath Terry said in a note Friday. "We continue to believe Netflix's investment in content, technology and distribution will continue to drive subscriber growth well above consensus expectations both in the U.S. and internationally."
The stock rose 3.1 percent in premarket trading Friday following the Goldman note, set to lead the overall technology sector higher following steep losses on Thursday. Netflix is down more than 25 percent in the past three months and more than 30 percent in the past six months.
While Terry acknowledged that the company's rampant cash burn will likely force it to return to the high-yield debt market over the next three years, he also sees Netflix doubling its annual content investment and generating positive cash returns by 2022.
The analyst also said Netflix still has "significant" room to grow in U.S. and European markets despite relatively high levels of use in those regions.Terry cited data that incremental North American app downloads reached an all-time monthly high in December despite more than 50 percent penetration of broadband households in the U.S.
"We believe the fourth quarter will only be the beginning of the payoff from Netflix's accelerating spend and increasingly robust Originals slate, and that consensus continues to significantly underestimate the financial impacts of these dynamics," he added.