Netflix stock rallied as much as 13% on Wednesday as Wall Street boosted their price targets on the streamer following its strong quarterly results for the fourth quarter of 2023.
The company’s revenue grew 12.5% year over year to $8.8 billion, beating the $8.72 billion consensus estimate expected by Zacks Investment Research. The higher-than-expected results were driven by its paid sharing initiative and recent pricing changes.
Additionally, Netflix added 13.1 million subscribers during the quarter for a total of 260.28 million — it’s second-best quarter ever for sign-ups since the COVID-19 pandemic-related surge during the fourth quarter of 2020.
Macquarie Research analyst Tim Nollen upgraded Netflix stock to an outperforming rating and upped his price target from $410 to $595 per share following the results.
“We resisted upgrading the stock til now on our expectation that the ad tier would take time to generate meaningful revenue, and password sharing transitions could weigh on average revenue per member (ARM) in the near term. Both proved correct, but we think Netflix has now turned the corner,” Nollen wrote. “The bigger Netflix gets, the more other studios will want to license it content, which then puts them in the familiar quandary of how to grow their own DTC services successfully in response.”
JPMorgan analyst Doug Anmuth reiterated its overweight rating and raised its price target from $510 to $610.
“We believe the combination of NFLX’s strong 4Q performance & elevated profit profile, scale of 260M households yet w/considerable headroom, & critical step into more diversified content through the partnership w/WWE suggests that NFLX is taking a step closer to becoming global TV,” he wrote. “Accordingly, we believe NFLX’s scale & strong profitability profile enable the company to lean into its industry leading position to invest in more content, advertising, & gaming.
While acknowledging Netflix’s “very clean” results, Anmuth expects some pushback from “limited increases to already accelerating revenue estimates for ’24, along with ongoing concerns about slowing of paid sharing benefits giving way to Ad tier growth & monetization.”
Wells Fargo analyst Steve Cahall reiterated his overweight rating on Netflix stock and boosted the bank’s price target from $460 to $650.
“We thought Netflix might tread water in the first half of 2024 with operating income margins set, paid sharing dwindling and ads scaling,” he explained. “Fourth-quarter outperformance indicates there’s a lot of growth/margin still ahead.”
Cahall noted that the ad tier is still in its “early innings,” but sees price increases, bundles and phasing out its basic ad-free plan as key drivers to scaling the offering moving forward.
“We think the WWE deal accelerates ads, but is not NFLX signaling a pivot toward pricey sports rights,” he added.
Despite the bullishness by some analysts, others remain more cautious.
While acknowledging that Netflix “remains the the best story in media among the vertically integrated producers/programmers/distributors,” Deutsche Bank analyst Bryan Kraft argues that its leadership position is now “fully priced” into the company’s stock.
“There’s potential for positive estimate revisions, however, nothing like the step change increases we saw the potential for when we upgraded Netflix in October 2022, when the market simply didn’t believe that the paid sharing opportunity was real,” he wrote. “Paid sharing was the key driver of subscriber growth in 2023, and was the reason for our upgrade 15 months ago. While we think there will be continuing benefits from paid sharing, we believe the low hanging fruit has been harvested.”
The firm downgraded Netflix from buy to hold, but raised its price target from $460 to $525 per share.
MoffettNathanson analyst Michael Nathanson said that Netflix is “riding high” by all counts, but expressed concern that the current subscriber growth in the U.S., Canada and Western European markets fueled by the password sharing crackdown could potentially result in a “subscriber headwind pocket in the middle of this year.”
“That pull-forward, as well as a potential churn spike from increased pricing on the high end of Netflix’s rate card, could come together to spook the market and re-set Netflix’s multiple yet again,” Nathanson wrote. He stuck to the firm’s neutral rating, but upgraded its price target by $35 to $475 per share.
Morningstar analyst Matthew Dolgin raised its fair value estimate on Netflix from $410 to $425 following Netflix’s quarterly results and 2024 outlook. But he warned the stock has gotten ahead of itself even as we expect Netflix to remain dominant.
“We see further tailwinds to [average revenue per member] over the next few years but believe subscriber growth will slow,” Dolgin wrote.
Netflix, which is currently trading at 552.98 apiece during Wednesday’s trading session, is up 18% year to date, 29% in the past six months, and 51.9% in the past year.
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