Following a bruising year for stocks, Netflix is now getting rosy reviews from Wall Street analysts.
Wels Fargo upgraded the stock on Friday, while Cowen increased their price target. Early in the trading session the stock surged on the news, gaining 4.5%. Both firms’ analysts pointed to the company’s newly formed ad-supported tier as a key element in their analyses.
Wells Fargo analyst Steve Cahall wrote in a note, “After a period of turmoil around slowing subscribers and revenue growth, NFLX is using every arrow in the quiver.”
Cahall increased his price target on the stock to $400 from $300 per share, as he upgraded his rating from Equal Weight to Overweight.
Cahall noted Netflix would have “way more ways to win” in the coming year, following a difficult 2022 which saw increased streaming competition and reduced content growth. Citing the successful debuts of “Wednesday,” “Dahmer – Monster: The Jeffrey Dahmer Story,” and “The Watcher,.,” Cahall added, “content is clearly improving.”
In addition, the much anticipated “Glass Onion: Knives Out” will debut on December 23rd, after seeing a limited theatrical release which proved quite encouraging. Cahall said he believes churn will improve in 2023, and that, combined with the new ad-supported tier, and a password-sharing crackdown bode well for the new year’s profits.
Although shares fell 45% since the beginning of the year, they have climbed over 65% in the past six months.
Cahall wrote, “Overall, we forecast NFLX’s ad-supported tier will drive around +23mm incremental subs by 2025E to 279mm global subs, vs our prior expectation of 256mm. We don’t see how AVOD isn’t anything other than incremental to subscribers.”
Noting the streaming leader’s engagement, “suggests it has plenty of pricing power ahead” to raise subscription fees, Cahall estimates revenue growth will be about 7% in 2023. “We see NFLX as one of the co-leaders in global streaming and over time we expect market share to benefit the few scaled players,” Cahall added .
Cowen analyst John Blackledge named the stock his firm’s top large-cap stock pick for 2023, noting it will continue to dominate the streaming space. Blackledge raised his target price form $340 to $405, rating the stock Outperform.
Blackledge said there were three main advantages for the stock, free cash flow growth, re-accelerated revenue, and new monetization levers as the company launched a crackdown on password sharing, and leveraged its new ad-supported tier.
In a note to clients, Blackledge wrote, “We view NFLX as a pioneer in online streaming, with further expected growth in subs in the U.S. and expectations for long-term sub growth internationally in existing and new markets.”
Blackledge noted the potential upside from the ad-supported tier is, “likely still underappreciated,” emphasizing, “We view NFLX as the best ‘recession play,’ particularly as the ad tier is attractive for value conscious consumers.”
