As a seasoned investor with decades of experience under my belt, I find myself leaning towards a cautiously bearish stance on Netflix in the near term, based on the insights provided by analysts like Matthew Harrigan and Robert Fishman.
The third-quarter financial results of Netflix have been released, along with initial analyses from Wall Street regarding their implications for the streaming service and its shares. Many analysts had approached the earnings report with optimism, despite cautions about the need for time before any additional growth in share prices considering the company’s growing market worth.
Under the leadership of co-CEOs Ted Sarandos and Greg Peters, as well as executive chairman Reed Hastings, Netflix concluded September with a total of 282.72 million subscribers worldwide. As anticipated, the quarter saw a lower number of new subscribers compared to the same period last year, with an addition of 5.07 million, which is less than the 8.76 million it gained during the corresponding period in the previous year.
In the third quarter, the following titles were introduced on the streaming platform: Emily in Paris (season 4), The Perfect Couple, Beverly Hills Cop: Axel F, A Good Girl’s Guide to Murder, and the final season of The Umbrella Academy (season 4).
In the ongoing final quarter of this year, the management expressed optimism on Thursday, stating: “We’re looking forward to wrapping up the year on a high note with an impressive lineup for our fourth quarter, featuring Squid Game season 2, the Jake Paul/Mike Tyson bout, and two NFL games scheduled for Christmas Day.” This positive outlook has prompted Netflix to predict a greater number of new subscribers in Q4 as compared to Q3.
Due to these factors, numerous analysts maintained or even increased their ratings for Netflix, causing its shares to surge during pre-market trading on Friday, rising by over 6%. However, it’s important to note that there were also cautions issued suggesting the stock might struggle to continue soaring to such heights.
Analyst John Blackledge from TD Cowen maintained his recommendation for buying Netflix stocks. Previously increasing his price prediction by $45 to $820, he subsequently raised it even more after the earnings announcement, setting a new target of $835. He justified this action by stating that “Following the third-quarter surpassing expectations, we’ve increased our subscription forecast, while slightly adjusting revenue, operating income, and earnings per share estimates for 2024 and beyond.
Mark Mahaney, an analyst from Evercore ISI, reinforced his positive stance on the stock following the earnings release, maintaining a rating of “outperform.” He also increased his price prediction by $25 to reach $775, which he adjusted in response to the company’s impressive third-quarter earnings that surpassed expectations and showed growth.
Additionally, he highlighted several positive aspects, including:
On Friday, analyst Brian Pitz from BMO Capital Markets increased his projected stock price for Netflix by $55, now setting it at $825. Additionally, he maintained his “outperform” rating in a report titled “Effectively Executing as Ad Monetization Thesis Remains Intact.
Pitz highlighted several positives, including “better-than-expected 2025 revenue growth guidance of 11-13 percent (versus BMO’s 11.9 percent)” and his “greater confidence in 10 percent ad revenue mix in 2026,” along with what he called “best-in-class co-CEOs.” The analyst also argued that Netflix’s estimated $18 billion content spending in 2025 “should onboard incremental users/limit churn.” And Pitz concluded: “Netflix remains a primary beneficiary of the $150 billion of linear ad dollars poised to shift online (we estimate $20 billion in the next three years).”
Guggenheim analyst Michael Morris continues to be optimistic following an increase in his 12-month stock price target from $735 to $810 prior to the most recent earnings announcement. After the report, he reaffirmed his “buy” recommendation on Friday, emphasizing a major factor behind his positive outlook as stated in the headline of his note: “An expansive content library driving continued growth.
As an enthusiastic follower, I echo the sentiments of William Blair analyst Ralph Schackart who reaffirmed his optimistic outlook for Netflix on Friday, maintaining his “outperform” rating without specifying a price target. In the title of his report, he emphasized the positive impact of better-than-anticipated profitability on full-year margin expectations, stating that the trend of margin expansion persists even into 2025.
His overarching summary: “We stay hopeful that this fresh ad-tier and paid sharing will boost our earnings in the near future. In essence, Netflix remains favorably placed to maintain its position as a dominant player in streaming for the long term. Moreover, he suggested that the upcoming subscription price hikes would eventually meet investor expectations.
Analyst Jeff Wlodarczak, working at Pivotal Research Group, remains the most optimistic about Netflix on Wall Street. On Friday, he increased his financial projections and raised his maximum stock price forecast from $900 to $925, while maintaining his “buy” recommendation. The title of his report was “This Is What Success Looks Like.
As a gamer, I’d rephrase it like this:
According to Wlodarczak’s analysis, it’s anticipated that Netflix will maintain a steady increase in subscribers and average revenue per user (ARPU), thanks to price increases, advertising expansion, and offsetting lower ARPU in emerging markets. This should lead to robust revenue growth with expanding margins, which is a very strong combination.
Analyst Laurent Yoon from Bernstein maintains a more reserved stance, assigning a “market-perform” rating, yet he has boosted his stock price prediction to $780, which was previously at $625. The question posed in the title of his Friday report is: “Smoothing Sailing Ahead?
He mentioned that there had been some worries about the third-quarter net subscriber additions, given the less robust content schedule and the need to surpass the initiatives for paid sharing from the previous period. The user growth, unfortunately, fell short of expectations, primarily in Latin America. However, he added that the most severe apprehensions have now been alleviated, and the optimistic outlook for the future was reassuring.
Yoon expressed his current perspective on Netflix shares as follows: “The primary query about Netflix has been whether its value is ‘overpriced.’ Based on the revised projections and optimism surrounding figures of ’25 and suggested ’26, we anticipate more growth potential.” He also emphasized: “We can’t envision a plausible negative scenario in the short term, and our viewpoint remains unchanged. Enjoy your streaming!
Contrarily, analyst Matthew Harrigan from Benchmark maintains his negative stance on Netflix, keeping the “sell” rating, despite increasing his stock price target to $555. In essence, his report’s headline reads, “Streaming Greatness Overpriced in a Market Driven by Momentum, Particularly as Shared Usage Benefits Mature.
Over the medium term, it’s possible that our projected member growth could be lower than expected, he cautioned. He explained that the benchmark’s valuation and assumptions consider substantial growth, but they also take into account growing competition in video streaming and a shift of user activity towards platforms like TikTok, augmented reality, short-form YouTube videos, etc., which are not focused on long-form video content. Even Netflix is adapting to this changing landscape.
Analyst Robert Fishman balanced out contrasting perspectives regarding Netflix and its current status. He stated, “Netflix has undeniably experienced a remarkable surge, a fact that led to Blockbuster’s downfall. This success was achieved despite a content production strike.” Moreover, he pointed out that the company managed to boost its profit margins during this period.
However, since a large portion of the new subscribers may just be better utilizing our current services, we’re uncertain if this trend will persist into the coming year,” he warned.
Yes, there is still the growth lever of the company’s still-developing ad business. “The other lever at the company’s disposal is pricing, yet, while it is likely that the company still has room to grow here, stalled total time viewed per subscriber may imply stalled pricing power growth as well,” Fishman noted. “The company has spoken to view time per ‘member amongst owner households’ (as in, excluding users previously password-sharing) as being up year-over-year, but it is hard to say the extent to which engagement from those password-sharers factored into the paying subscriber’s value equation.”
Translation: Fishman pointed out that Netflix’s stock is extremely pricey considering its projected 4% cash flow yield in 2026, especially since the company itself expects a slowdown in revenue growth into 2025 (from 15% this year to 11-13%). He also noted that Netflix’s price-to-free cash flow multiple is higher (at 27.9 times) than many other big tech companies, some of which have faster growth rates. For instance, his chart showed Meta at 24.9 times, Amazon at 20.5 times, and Snap at 19.9 times.
The most recent figures from Netflix have sparked attention not just among typical Wall Street analysts, but also beyond. In a statement, Brian Wieser, principal at Madison & Wall, commented, “We approximate that Netflix now makes up nearly 10% of all spending on video services in the United States. This is significantly more than the approximately 8% of total viewing time dedicated to Netflix, demonstrating the greater value consumers perceive in Netflix compared to other options.
He also highlighted further ad trends. “During the past quarter 50 percent of sign-ups in ads markets chose the ads plan, representing an acceleration from the most recently disclosed figure of 40 percent in each of the first quarter of 2024 and the fourth quarter of 2023,” the expert wrote. “For context around how many households subscribe through ad-supported tier, our analysis of data from Antenna suggests that 12 percent of U.S. subscribers – around 7 percent US TV households – have this plan, approximately double last year’s level. To the extent it is correct, growth from ad-supported members accounts for almost all of the service’s growth in the United States since the tier was launched nearly two years ago.”
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2024-10-18 16:25