MORGAN STANLEY: Netflix’s international growth will protect it from the competition (NFLX)

reed hastings

Netflix’s growth continues to explode overseas.

In addition to earnings that beat on both top and bottom line growth, the company on Monday said it added 4.45 million international subscribers, beating both Wall Street and in-house estimates.

Based on these impressive numbers, Morgan Stanley has raised its price target for shares of Netflix to $235 from $225 — 11% above the stock’s price of $200 Tuesday morning.

"Following the strong 3Q17 results and 4Q17 guidance, primarily driven by Netflix adoption internationally, we raise our long-term international subscriber forecast and currently expect +15.75mm international streaming net adds in '18E (vs. prior +14.2M)," analyst Ben Swinburne said in a note Tuesday morning.

This international growth, coupled with cable TV partnerships at home and its investment in original programming, will help Netflix strengthen its moat against encroaching competitors like Disney, which last month announced it would yank its content from Netflix and launch its own streaming service.

"As it navigates a wary but likely still willing partnership with traditional, vertically integrated media companies, its position as a studio and the clear positive impact that its original programming is having on the business provide a nice hedge to strategic shifts by historical suppliers such as Disney."

The news confirms Swinburne’s thesis that Netflix has created a model it can replicate in international markets. He explained how this works in an interview with Markets Insider last week ahead of earnings:

"History would tell you that given time, [Netflix] can ramp in almost any kind of market. It's probably intuitive that a market with a relatively developed economy like the US and the UK, and certainly English language with a strong technology adoption curve, strong broadband networks, would be a successful one for Netflix.

"Then you look at a market like Brazil — obviously an emerging market, with a much different income per capita, a much weaker broadband-network structure than what you typically see elsewhere, and the product has scaled to profitability and significant penetration rates that should give people confidence that they can scale in other kinds of markets."

Shares of Netflix rocketed past $200 and hit an all-time high Monday afternoon into Tuesday morning after the earnings report, but are currently trading down 1.22%.