Netflix Advances As The Market Anticipates Rapid Expansion

On Monday, Netflix’s shares saw an increase in value as analysts raised their expectations for the company’s growth initiatives. This comes ahead of the June quarter earnings report, set to release on Wednesday. Over a year ago, Netflix’s founder, chairman, and former CEO, Reed Hastings, shared plans to launch an ad-supported streaming tier, as well as potentially crack down on password sharing. The company has since progressed on both fronts, and analysts anticipate these measures to have a positive impact on revenue and subscriber growth. The post-earnings analyst call is expected to include in-depth discussions on the effects of current labor actions on film and TV production. Hollywood’s actor’s union went on strike last week, joining screenwriters on the picket line.

Netflix expects to generate $8.2 billion in revenue this quarter, up by 3.4% from last year. Their projected profit is $2.84 a share, a decrease from $3.20 a year ago, and subscriber growth is expected to be in line with the 1.75 million added in the first quarter. Nevertheless, the expectations for subscriber growth are increasing.

Deutsche Bank analyst, Bryan Kraft, reiterated his buy rating on Netflix shares and raised his target price on the stock to $475 from $410. He is optimistic about the new ad-supported subscription tier, priced at $6.99 a month, and the company’s efforts to reduce password sharing. Kraft predicts that advertising will add $400 million in revenue this year, $1.3 billion next year, and $2.3 billion in 2025, jumping to $6 billion by 2030. He also believes that the password crackdown will add $900 million in revenue this year, $3.4 billion next year, and $4.5 billion in 2025.

Although the valuation case for Netflix shares has become more challenging with a 53% increase in stock value for the year to date, Kraft recognizes Netflix as one of the few media and communications companies with solid earnings and free cash flow growth stories.

Alan Gould, an analyst at Loop Capital, has also raised his target price to $425 from $330 while maintaining a Hold rating. Gould believes that the labor issues in Hollywood will benefit Netflix’s competitive position, thanks to its vast collection of unreleased content and global production capabilities.

However, with the stock up by over 30% since the last earnings report, he sees the risks and rewards as evenly balanced heading into the quarter.

Mark Mahaney, an analyst at Evercore ISI, maintains an Outperform rating and $400 target price on Netflix shares but has made a “tactical underperform” call on the stock. Mahaney believes that subscriber growth expectations for Q2 and Q3 have reached an elevated range of four to five million and five to seven million, respectively, increasing the likelihood of a negative Q2 surprise.

Netflix Long (Buy)
Enter At: 458.45
T.P_1: 465.09
T.P_2: 474.46
T.P_3: 484.47
T.P_4: 493.65
S.L: 416.40


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