RBC: This Survey Data Makes Netflix a '#1 Buy'

Time to hit play, not stop.

The Netflix Inc. application (app) is displayed on an Apple Inc. iPhone 5s.

Photographer: Andrew Harrer/Bloomberg

Investors in Netflix Inc. might be frustrated with the stock's negative returns in 2016 after last year's 125 percent surge, but analysts at RBC Capital Markets, LLC say that things are about to get better. In fact, the firm calls Netflix its "#1 buy." 

The team, led by Mark Mahaney, just did three surveys in the U.S., U.K., and Brazil and came away extremely optimistic about the streaming video service. "These results showed rising usage, an improving competitive position, and potentially ameliorating impact from the 2016 price increases – clear positives, in our view," they wrote. "All in, we continue to believe that Netflix can grow its subscriber base while increasing price by continuing to improve its content offerings and proving out its value proposition to users – all this while increasing its profitability."

One of the most encouraging findings from the U.S. survey was the record level of usage, after the prior survey saw it ticking down. That survey had more than 1,100 participants with 54 percent of them being current Netflix subscribers. An additional 15 percent were not currently Netflix subscribers, but had been in the past. 

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RBC Capital Markets, LLC

For the U.K. and Brazil, RBC found large upticks in penetration for both markets. In the U.K., 42 percent of respondents reported using Netflix, up from 30 percent in the survey conducted one year ago. For Brazil, there was 71 percent penetration, up from 60 percent in August 2015. Then again, there was also an uptick in U.K. respondents saying they are likely to cancel their subscription in the next three months. This doesn't seem to worry Mark and his team, however as they say that the "U.K. may still have elevated churn due to price increases, but we believe this problem is solvable."

Lastly, competition from firms like Amazon.com Inc., which offers a number of movies, tv shows, and documentaries for Prime members, has been another concern for analysts. This led RBC to ask respondents in another survey, which has not yet been released, if they were Amazon Prime members, and then find out whether they were more or less likely to also subscribe to Netflix. 

"As part of our upcoming annual Amazon/Online Retail survey (not yet released), we tested the incidence of Netflix subscriptions among regular Amazon customers and among Amazon Prime customers [...] Amazon Prime Members – despite access to a large amount of 'free' premium video streaming content – are more likely to be Netflix subscribers than Amazon customers who aren’t Prime Members. Go figure."

The results showed that 68 percent of Prime members were also Netflix subscribers, while only 51 percent of respondents that were not Prime members used Netflix.