Source: Barron's
Author: Paul R Lamonica
Netflix is expected to benefit from the “right business model” — creating content, balancing costs, and increasing profits.
$Netflix (NFLX.US)$This technology company, which has almost been “forgotten,” is returning to the spotlight of US stocks — the company will announce its first-quarter earnings report on April 18, EST.
Once upon a time, Netflix was part of the “FAANG Club” — including Facebook's parent company$Meta Platforms (META.US)$,$Amazon (AMZN.US)$,$Apple (AAPL.US)$,$Netflix (NFLX.US)$,$Alphabet-A (GOOGL.US)$
Today, FAANG has been replaced by a new technology “Big Seven”, including four “FAAG” members other than Netflix, and$Microsoft (MSFT.US)$,$NVIDIA (NVDA.US)$und$Tesla (TSLA.US)$.
Investors need not worry about Netflix's first-quarter earnings report. Wall Street expects the company's strong performance in the first quarter, with earnings per share rising 56% to $4.5 billion; total revenue of US$9.3 billion; and 4.9 million new subscribers.
Since this year, Netflix's stock price has risen 28% to $622.83, and the valuation is 35 times the 2024 profit forecast. Considering Netflix's earnings per share are expected to rise 43% this year, $622.83 is a reasonable price, even if it's not cheap.
Despite facing competition from companies such as Apple, Amazon, Disney, and Comcast, Netflix is still the leader in the streaming media market. Behind this is the company's huge and continuously expanding content library. Consumers may reduce their subscriptions to other platforms and opt for content-rich platforms such as Netflix.
Monness Crespi Hardt analyst Brian White (Brian White) wrote in his earnings outlook: “Many streaming competitors seem to be in turmoil, which in turn makes them more vulnerable to customer churn.”
Analysts are particularly optimistic about Netflix's bets on sports content, such as the popular F1 racing documentary series “Drive to Survive” (“Drive to Survive”) and the golf show “Full Swing” (“Full Swing”).
In the face of the recent Hollywood screenwriter and actor strike, adding more unscripted shows has helped Netflix. In July of this year, Netflix plans to host a live boxing match where Mike Tyson (Mike Tyson) will face Jake Paul (Jake Paul).
Next year, Netflix has another major breakthrough in terms of content—the company has reached an agreement with World Wrestling Entertainment WWE to broadcast the live wrestling show Raw every Monday night starting in 2025. This move is expected to increase the number of subscribers to the platform. In particular, Netflix is currently cracking down on free password sharing and promoting low-cost advertising programs.
“Paid sharing still has room for growth, and low-cost advertising solutions are in the early stages of development.” White wrote.
J.P. Morgan (J.P. Morgan) analyst Doug Anmuth (Doug Anmuth) pointed out that cooperation with WWE will bring “valuable and differentiated content, as well as beneficial economic benefits and content copyright” to Netflix. Ammus believes that the “Tyson vs. Paul” fight is probably the most watched boxing match in history because it is easy to watch. In addition, Netflix has huge global branches, which can drive advertising revenue growth and offset the impact of the midsummer off-season.
Ultimately, Netflix is expected to benefit from what Wedbush Securities (Wedbush Securities) analyst Alicia Reese (Alicia Reese) calls the “right business model” — creating content, balancing costs, and increasing profits.
Reese pointed out that Netflix's continued expansion in the gaming sector can increase revenue from licensed content, while low-cost advertising plans will reduce user churn and increase ratings. Reese raised the target price of Netflix shares to $725, a 15% premium over the current price. This is also one of Wall Street's most optimistic predictions.
Reese wrote that the target price of $725 is 36 times the expected profit of Netflix in 2025. If Netflix can meet its goals, the stock price will hit a record high during this period — surpassing the intraday high of around $700 in November 2021.
Pivotal Research analyst Jeffrey Wlodarczak (Jeffrey Wlodarczak) further expressed bullish views and raised the Netflix stock target to $765, believing that the company is “the world's dominant paid video entertainment platform.”
The FAANG that used to be is no longer there. However, it is time for investors to add Netflix's name to the “Big Seven.”
Editor/Somer