Not a lot has gone right for shares of streaming giant Netflix (NASDAQ:NFLX) over the past few months. Rising rates are pressuring the company’s debt-heavy balance sheet, and creating a drag on the valuation of Netflix stock.

Competitors like AT&T (NYSE:T) and Disney (NYSE:DIS) are more aggressively moving into the streaming space. Digital taxes throughout Europe threaten to hit Netflix’s bottom line hard. Analysts have been downgrading the stock, and estimates are moving lower.

All together, Netflix stock has dropped 36% off its recent highs in just five months.

Now, investors have something more to worry about. Walmart (NYSE:WMT) is planning to launch a streaming service through Flipkart, the Walmart-owned ecommerce company based in India.

Although the move is mostly to counter Amazon (NASDAQ:AMZN) (Walmart wants to build an ecosystem on par with the Amazon ecosystem) it also strikes Netflix where it hurts most.

India is supposed to be Netflix’s next big growth driver. The company has pounded on the table before about how that streaming market is oozing with potential. Indeed, management has said that they expect the next 100 million Netflix subs to come from India.

But, Netflix is off to a rough start in India. They have just five million subs, which is less than 2% of the market. Why? Competition. Now, a new competitor is entering the mix. That’s not great news for the already beaten up Netflix stock.

It also isn’t something to worry about yet. It’s still early in the India streaming narrative, and Netflix has a lot of time to make up for lost ground. Plus, India is just one peg in a global streaming growth narrative that still looks very promising for Netflix stock.

Overall, Netflix stock still looks good here, even with competitive risks building.

It’s Still Early in the India Streaming Narrative

Right now, Netflix is struggling in the burgeoning India streaming market because of price. Whereas Netflix in India costs anywhere between $7 to $11 per month, Netflix’s streaming competitors in India are charging consumers a fraction of that. For example, India streaming market leader Hotstar costs just $3 per month.

It’s no surprise, then, that Hotstar has 75 million monthly active subscribers in India, while Netflix has just five million. Throwing a Walmart-backed Flipkart streaming service into the mix will only make the India market more of an uphill battle for Netflix.

But, it’s still early in the game. India has a population of 1.4 billion. Of that 1.4 billion, only 460 million are internet users, and only 250 million are Facebook users. Presumably less are internet streaming service subscribers. Thus, you are talking about a streaming penetration rate of likely under 15%.

Compare that to America, where 55% of households subscribe to at least one streaming service.

In other words, the India streaming market is still young, and Netflix still has a lot of time to make up for a poor start. How will Netflix do this? Same way they dominated the streaming market everywhere else. Double down on original content.

As we’ve seen in America, Canada, Latin America, and across Europe, consumers are willing to pay up for quality original content. As Netflix produced more and better original content, the company added users at a unprecedented rate and raised prices without churn.

The same will be true in India. The more India-focused originals Netflix produces, the more consumers will see the value of Netflix as a premium streaming option, and the more subs the platform will add.

As such, there’s still reason to be optimistic about Netflix’s potential growth in India.

Long Term Fundamentals for Netflix Stock Remain Strong

The best part about Netflix stock is that India is just one part of this company’s global streaming growth narrative. That narrative includes the prospects of huge growth potential within the next decade.
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Combining data from Internet World Stats and the United Nations, and assuming some population and internet penetration growth over the next decade, I’ve constructed the attached two tables which take a stab at how big Netflix’s addressable market will be in a decade.

he analysis rests on two assumptions. First, households with a Facebook (NASDAQ:FB) account are potential Netflix households. Second, Netflix’s penetration rates will only grow globally thanks to cord-cutting and original content.

The conclusions? Netflix’s addressable market in ten years will measure to nearly 750 million households around the world. Of those 750 million, Netflix should be able to capture just under half, or about 350 million.

Thus, I see Netflix as a global streaming platform with the potential to have 350 million subscribers within the next decade. Price hikes should persist with more original content, so average subscription price should move towards $15 during that stretch. Under those assumptions, Netflix has $63 billion revenue potential in a decade.
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At that point in time, operating margins should stabilize around 30%, thanks to price hikes. Putting those two together and factoring in higher debt costs, I reasonably see Netflix doing about $30 in earnings-per-share at maturation (by fiscal 2027).

Growth stocks normally trade around 20X forward earnings. That is where Netflix stock should trade at maturation. A 20 forward multiple on $30 in EPS implies a fiscal 2026 price target of $600. Discounted back by 10% per year, that equates to fiscal 2018 price target of roughly $280 for Netflix stock.

Bottom Line on NFLX Stock

Netflix stock isn’t without risks, and those risks are only getting bigger as we head into 2019 with rates rising, growth slowing, and competition heating up.

But, the core long term growth narrative of Netflix replacing traditional TV as the global entertainment norm remains healthy. So long as this narrative remains healthy, Netflix stock will remain in a long term uptrend.

As of this writing, Luke Lango was long NFLX, DIS, AMZN, and FB.