How big can Netflix get?

Josh Wein

How big can Netflix (Nasdaq: NFLX) get? Tuesday morning brought one answer to that question: $389.16 per share. The stock opened at that all-time high a day after the company reported its Q3 earnings, before shedding about 9 percent throughout the day. That was apparently big enough for Carl Icahn, the investor who last year bought up nearly 10 percent of Netflix's stock. Having seen the value of his stake climb more than 400 percent, he sold about half of it.

Icahn didn't sell quite at the stock's peak. The vast majority of the shares he unloaded went for $341.44. But taken together with the other Netflix shares he sold this month, Icahn walked away with $825 million in profit, according to Forbes' math. Not a bad investment.

Where Netflix's stock goes next is anyone's guess. In its quarterly letter to shareholders, Netflix management said the recent "euphoria" around its shares recalls the "momentum-investor fueled euphoria" of 2003. That year, the price of Netflix stock ran up to then-record heights, but the stock plunged in 2004 and would not return to those levels for another four years. "Every time I read a story about Netflix as the highest appreciating stock on the S&P 500, it worries me because that was the exact headline that we used to see in 2003," Netflix CEO Reed Hastings said during Tuesday's video conference Q&A with stock analysts.

Hastings also seemed interested in tempering expectations around the company's international growth prospects. When BTIG Research's Rich Greenfield asked if Netflix could become bigger globally than HBO--Greenfield said HBO has roughly 114 million subscribers today--Hastings said it would probably take longer than five years to achieve that. "I don't know when we'll catch them," he said.

But Netflix's management clearly sees a massive international opportunity. Later during the same conversation, Hastings pointed out that most Internet companies see about 80 percent of their revenue come from outside the United States.

Long term, that's where Netflix should be too, he said.  On this point, he still hedged a bit, saying Netflix's revenue makeup may settle in closer to 30 percent domestic, 70 percent international, given the fact that the company started so focused on renting DVDs to Americans.

Leaving Netflix's DVD business aside, its revenue for the first nine months of 2013 was basically a mirror image of that long-term goal. More than 80 percent of Netflix's streaming sales this year came from U.S households.

If Hastings is right, and if Netflix can avoid declines in its domestic streaming business, the total streaming opportunity could be very large. If the day comes when domestic streaming revenue represents 30 percent Netflix's business, the company would be looking at total global streaming revenue of at least $2.1 billion a quarter, up from about $884 million in the quarter Netflix just reported.

The big question is: How much of that revenue will Netflix get to keep?

Expanding overseas is expensive. Netflix has lost an average of $64 million a quarter pushing into new territories since the end of 2010, according to its financial statements. Though the actual figure has swung quarter-to-quarter, in that time Netflix's international streaming business has never turned a profit. Content costs will increase as well as the global rights Netflix needs to enter new territories surely do not come cheap.

But confidence among investors that Netflix will figure it out might be contributing to the "euphoria" management referenced in its quarterly letter. --Josh | +Josh Wein | @JoshWein