Optimism is running high among Netflix Inc. (NASDAQ:NFLX) bulls, who have been raising their price targets in anticipation of strong results, driven by popular shows like “Bridgerton.”
Key Highlights
Analyst Confidence Grows:
The average price target for Netflix, as tracked by Bloomberg, has been steadily increasing. Significant raises have come from analysts at Morgan Stanley, Bank of America, and Guggenheim, among others. Jefferies analyst James Heaney recently upped his target from $655 to $780, citing Netflix’s strong content lineup and successful conversion of password-sharing viewers.
Portfolio Managers’ Views:
Hanna Howard, portfolio manager at Gabelli Funds, shares this optimism. She emphasized Netflix’s unique position due to its strong international content and high consumption rates. Despite high expectations, Howard believes Netflix has the potential to exceed them.
Subscriber Growth Projections
Quarterly Expectations:
Wall Street analysts, on average, forecast Netflix will add about 4.9 million subscribers in the second quarter. This follows a robust first quarter where Netflix added over 9 million users, surpassing estimates. Although Netflix cautioned that growth might slow this quarter due to seasonal factors and plans to stop reporting subscriber numbers by 2025, some analysts see these projections as easily beatable.
Morgan Stanley’s Bullish Stance:
Benjamin Swinburne of Morgan Stanley predicts 7 million new subscribers for the quarter and over 30 million for the year. He attributes this to strong execution, the introduction of paid sharing, and ad-supported tiers, which cater to more price-sensitive customers. Swinburne increased his price target to $780, with a bullish case of $950.
Stock Performance and Future Outlook
Potential for Record Highs:
Another strong quarter could push Netflix shares to new all-time highs, the first since 2021. Currently, the stock is about 7% below its record closing price, with options data indicating an implied one-day move of nearly 9% in either direction.
Trader Sentiments:
Jay Woods, chief global strategist at Freedom Capital Markets, suggests a cautious approach for traders. He advises waiting to see if the stock gaps up and holds, which could signal a continued upward trend over the next three months.
Skeptical Views:
Not all analysts are fully convinced Netflix can meet high expectations. Evercore ISI’s Mark Mahaney notes the second quarter is typically slower, and aside from “Bridgerton,” Netflix’s content slate was relatively uneventful. While Mahaney maintains an outperform rating, he also points out Netflix’s elevated valuation at about 32 times forward earnings.
Shifting Metrics and Future Strategy
Reporting Changes:
As Netflix plans to stop reporting subscriber numbers, bullish investors will need to adjust their focus to revenue and profit metrics. This shift reflects Netflix’s strategy to generate more revenue from existing subscribers.
Company’s Recovery:
Despite initial backlash when this reporting change was announced in April, Netflix’s recovery since early 2022 has been noteworthy. The company faced significant challenges during the first half of 2022, including customer losses, layoffs, and programming cuts. Netflix’s subsequent measures, such as the password-sharing crackdown and ventures into advertising and video games, have spurred a comeback.
Industry Perspectives:
Matt Stucky, chief portfolio manager at Northwestern Mutual Wealth Management, highlighted Netflix’s unique position and the positive narrative of its recovery since 2022. He pointed out that the reacceleration of Netflix’s fundamentals has bolstered its stock performance.
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