Netflix stock price was down on Thursday, trading at $217.02 as of 10:51 AM EDT.
Morgan Stanley kept its equal-weight rating on the streaming behemoth but warned there will be chances due to its planned advertising-supported tier, which led to a small increase in Netflix stock price (NASDAQ:NFLX) in premarket trade on Thursday.
The ad-supported tier, according to analyst Benjamin Swinburne, might aid Netflix in growing both its average revenue per user in developed areas as well as its total addressable market. Swinburne also has a $230 price target on Netflix (NASDAQ:NFLX). Because of this, Swinburne stated that “we upgrade our [U.S. and Canada] net additions outlook from modestly shrinking to modestly rising over time, but stay at or modestly below consensus.”
The company now projects that the area will add between 9 and 10 million new subscribers in 2023, but acknowledged that there is a “broad range of outcomes,” noting that every 10 basis points of monthly churn translate to 2 to 3 million net subscribers. The analyst also increased his projections for paid net additions between 2023 and 2025, with hopes for Netflix (NASDAQ:NFLX) to grow its subscriber base by between 9 million and 10 million annually, up from his previous projection of 8 million.
Netflix Stock Price Analytical Basis
As it implements its paid-sharing activities, Swinburne also predicted that Netflix (NASDAQ:NFLX) might have a “small lift” in average revenue per user. A “fraction” of the 100 million password-shared accounts will be monetized over the course of the next two to three years.
According to the analyst, if paid sharing only generates a $3 to $5 advantage each month, average revenue per user might increase by up to 900 basis points from 2022 levels. However, any advantage from more net subscribers is likely to be outweighed by the U.S. dollar’s sustained growth, which will have a negative impact on short-term profits per share, revenue, and margins due to foreign exchange.
Although Swinburne stated that Netflix (NASDAQ:NFLX) is the “obvious market leader in streaming,” shares have been re-rated a little, trading at a price of 18 times EBITDA forecasts and 23 times expected 2023 earnings per share. Swinburne wrote that “Netflix consensus estimates have been trending upward and shares have seen multiple expansion for the first time in years.”
Swinburne said, “We do think that some of the success has been reflected in the market, but there is still a lot of uncertainty about how the ad-supported tier and paid sharing will affect growth.” However, we do think that the risk-reward ratio in shares is now “roughly balanced.”
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Featured Image- Megapixl @ M-sur
Author Jowi Kwasu