(Photo by Olly Curtis/Future Publishing)
Netflix share prices jumped 4 percent Monday morning after research analyst MoffettNathanson declared it the streaming war winner, “case closed,” and upgraded its target price for the streaming-video giant by $250, to $1,100.
“Netflix has won the streaming wars. Case closed,” MoffettNathanson analysts led by Robert Fishman declared in an investor note released Monday morning. “But where does the company go from here? How much more runway for growth is ahead?”
Turns out on deeper examination of the company’s fundamentals, Fishman’s team found lots of runway still exists, thanks to several factors:
- Netflix has further room to grow its revenue-per-hour-viewed, as it “still appears to be under-earning relative to the engagement it drives.”
- The ad-supported tier that Netflix launched in late 2022 is still building out, another area where the company can “effectively ramp monetization.” MoffettNathanson forecasts Netflix will generate $6 billion in ad revenue in 2027, and nearly $10 billion in 2030. Importantly, launching the ad tier “was essentially a price cut in some of its highest-priced countries,” expanding the potential addressable market.
- More subscription revenue and faster ad revenue growth will combine to drive margin expansion of at least 200 basis points annually, to an estimated 40% by 2030, Fishman’s team wrote.
“Essentially, the more we dug into the story on the fundamental side, the more we got confidence,” said Fishman in a CNBC interview this morning.
Fishman acknowledged that MoffettNathanson had largely been “on the sidelines” with Netflix’s stock, among the more bear-ish of analysts tracking the company especially as shares prices nearly doubled in 2024, topping $1,000 earlier this year. Then came the big market drawdown focused especially on the Magnificent 7 tech stocks, which sent Netflix plunging from mid-February highs around $1,064 to a March 10 close of $866, a drop of nearly 19 percent in less than a month.
“Before, we were below consensus,” Fishman said. “After the recent pullback, we had the ability to justify our price target, and look at where the stock is trading relative to its growth. It became attractive to us.”
Attractive enough to bump the firm’s target price for Netflix from $850 to $1,100, and raise the rating from Neutral (a hold equivalent) to Buy, “with greater confidence in the margin-expansion story.”
Netflix shares jumped 4% on Monday by early afternoon, to north of $957 apiece, after the MoffettNathanson upgrade.
MoffettNathanson wasn’t the only analyst finding reasons to back Netflix stock. Virtus Investment Partners Sr. Managing Director Joseph Terranova said on CNBC that Netflix’s recent push into live events, especially sports, are giving audiences another high-profile reason to subscribe and watch.
“We’re talking about a company that’s looking toward the future and investors are excited around that future,” Terranova said. “It really circles around live sports programming, and having ad and subscription revenues increase around that.”
The November boxing exhibition between social-media influencer Jake Paul and aging former heavyweight champion Mike Tyson attracted more than 60 million viewers globally, enough to strain Netflix servers for some audience members. Netflix also carried two heavily watched NFL games on Christmas Day, and in early January launched weekly live ‘casts of WWE’s Raw program.
Terranova said he expects Netflix to expand further into live sports, perhaps with more NFL games (especially if the league adds an 18th regular-season game) or mixed martial arts (TV contracts for UFC expire after next season and could be a target). He noted that Netflix share prices remain above their 50-day moving average.
MoffettNathanson’s updated approach to valuing the company uses a 29.5X price-earnings multiple for estimated 2027 returns, the company notes. That implies a price/earnings/growth ratio of 1.25, still below the average PEG ratio of all S&P 500 companies.
