Pro: Netflix's Infamy As IPTV Sector Killer Could Continue

Buckingham Research said in a note Wednesday Netflix, Inc. (NASDAQ: NFLX) is likely to remain the global category killer for Internet-Protocol TV.

Accordingly, the firm initiated coverage of the company with a Buy rating and a $214 price target, which suggests 16-percent upside from current levels.

Analyst Matthew Harrigan said Netflix has evident long runway global subscriber growth prospects, with its equity story showing ample legs, as its operating margin gradually normalizes toward other content entrants such as Time Warner Inc (NYSE: TWX)'s HBO.

Buckingham Research expects member growth momentum to continue, giving more credibility to the bull stance that the company could achieve global members of even 300 million in 2025, with baseline near 234 million.

The firm expects a slight third-quarter membership growth deceleration to just below 4.5 million globally, as some growth was pulled into the second quarter.

Additionally, the firm expects Netflix to move tentatively into free cash flow positive in 2021 after generating cumulative free cash flow deficits of $6.3 billion from 2017 to 2020. The firm feels the company's aggressive investment in its global expansion would be supported by its $79.9 billion equity market capitalization.

See also: Poll Shows Netflix Remains The King Of Content

Meanwhile, the firm sees competition from OTT streaming entrants, with distinctive original programming versus me-too skinny bundles with familiar cable channels.

The firm noted that consumers now prefer multiple original programming streaming offerings, such as the one from Walt Disney Co (NYSE: DIS)'s new service launching in late 2019, which would feature Marvel and Star Wars as well as Disney-branded hit content.

"Netflix is a major disruptor within the global TV ecosystem, and it should command ample long-term network effects even if not as overwhelming as those for FANG brethren Amazon.com, Inc. (NASDAQ: AMZN) and Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG)'s Google," the firm said.

The firm also noted that the company's current technology advantages include better codecs for video delivery, including for mobile in developed markets, as well as personalized recommendation engines using AI/Machine Learning.

Buckingham Research indicated that its best case/worst case 2018 valuation scenarios for Netflix shares are $308 and $140, respectively, providing returns of +67 percent and -24 percent.

Related Link: More Subscriber Upside Likely For Netflix In Q3