(Bloomberg) -- Don't give up on shares of Netflix Inc. just yet.
Analysts have been growing more cautious when it comes to the streaming service, with worries over subscriber growth and competition from other digital services such as Hulu and Amazon.com Inc. However, Netflix has found a friend in the form of analysts at RBC Capital Markets LLC led by Steven Cahall, who double down on their call that the company is their 'number one buy' in a new note this Thursday.
They have two charts outlining their thinking, which centers on Netflix's ability to translate strong subscriber growth and user engagement into more money.
The first chart, naturally enough, shows subscriber growth. Here, the RBC analysts say there's room to run with little sign of a recent slowdown. While a number of traditional platforms such as Comcast Corp., Discovery Communications Inc., and Viacom Inc. have seen subscriber numbers drop, Netflix saw double-digit growth from 2013 to 2015.
Secondly, RBC says that the even more important number is the average amount time users spend viewing the platform each day.
This is where Netflix and Walt Disney Co. are leading the pack with about two hours of average daily viewership, compared to a sometimes dramatic drop-off dramatically for some other outlets. "In addition to subscribers/subscriber growth, we think viewer engagement including minutes of viewership is a key consideration for various Media content platforms," the analysts write.
The team followed up by giving three reasons this data makes them so bullish on the stock:
- There's still substantial upside potential in U.S. user growth, given that it remains below the average for traditional media firms despite more time spent on the platform by its users.
- Netflix might have more pricing power than people currently realize. "The consistently greater engagement by Netflix users vs. other key media networks suggests that Netflix's monetization can rise materially from current levels," they write.
- Profit could surge if Netflix is able to close those gaps is household and profitability discussed above.
Of course, competition is likely to only become even more of an issue in the future, not less of one.
Hulu has approximately 11 to 12 million subscribers and Amazon doesn't disclose the number of users streaming its video service. The former platform also recently announced plans to stream TV in the U.S. next year.
"If the Hulu live TV product takes off in 2017, that will be a big headache for Netflix," said Geetha Ranganathan, media analyst for Bloomberg Intelligence. "Netflix itself refers to Hulu as a 'cord-cutter's dream."
Wall Street currently has 23 "buy" ratings, 14 "hold" ratings, and seven "sell" ratings on Netflixshares, with the average price target sitting at $102.25, a 5 percent climb from yesterday's close. RBC has the highest target at $130.