According to a new report from RBC Capital Markets, Netflix, Inc. (NASDAQ:NFLX) is firing on all cylinders in its international expansion and will start to see increasing revenues for its efforts in the near future. RBC analysts Mark S. Mahaney and colleagues “continue to believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn’t currently factored into its stock price.”

The analysts argue that despite the fact Netflix is up more than 30% so far this year, sentiment regarding the stock is negative as NFLX has the highest short interest and lowest Buy rating ranking of all large cap Internet stocks. RBC rates Netflix as Outperform, and has increased their price target on shares from $530 to $600 based on a SOP valuation framework through 2016.

Netflix

Netflix expanding rapidly in Europe

Netflix, Inc. (NASDAQ:NFLX) will be launching its streaming service in Germany, France four other European countries in the next couple of months. The RBC report highlights that 1. Netflix’s International rollout have been successful so far given that Netflix’s 14 million international subscribers represent around 15% penetration of all broadband households. 2. The new European launches represent a 65 million increase in NFLX’s international broadband footprint (a 70% increase). If you assume a 10%-20% penetration, the new European markets could add up to new subscribers for the firm by 2016. 3. Over the long run, NFLX can reach 60 million international subscribers by hitting a 20% penetration of broadband households in the top-20 non-U.S./China markets.

Netflix

Netflix dominates U.S. paid streaming market

Mahaney et al also point out that 42% of respondents to RBC’s US Internet use survey said they use Netflix to watch movies and TV shows. That puts NFLX neck in neck with YouTube (44%) and far ahead of Amazon at 23%.

Moreover, 65% of Netflix subscribers are “Extremely satisfied” or “Very satisfied”, with the 23% “Extremely satisfied” response the highest satisfaction rating on record for the company. The report also notes that churn levels are likely low given that 73% of subscribers said they were “Not at all likely” to cancel in the next 90 days.

Netflix’s emphasis on original content is paying off as a record high 57% agreed that original content was “Extremely important”, “Quite important”, or “Moderately important” on whether they decided to remain a  subscriber.

Strong UK growth

The RBC report also highlighted the firm’s strong performance in the UK. A record high 25% of respodents to RBC’s UK Internet use survey use Netflix to watch movies and TV shows.This number is far behind YouTube at 42%, but well ahead ahead of Amazon’s 15%. The survey also shows that Netflix, Inc. (NASDAQ:NFLX) subscribers are satisfied with their streaming service: 70% are “Extremely satisfied” or “Very satisfied.” Last but not least, U.K. churn levels are also probably shrinking as a record high 44% of subscribers said they were “Not at all likely” to cancel in the next 3 months.