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Shares of Netflix ( NFLX ) soared double digits on Wednesday, rising as much as 14% after the streaming giant reported strong fourth-quarter profits with more than 13 million subscribers.
Revenue for the quarter rose 12.5% year-over-year to $8.83 billion, beating consensus estimates of $8.71 billion. This comes as streamers focus on revenue measures such as cracking down on password sharing and ad-supported tiers, as well as recent price hikes on certain subscription plans.
The company expected first-quarter earnings per share (EPS) of $4.49, beating the consensus estimate of $4.09.
Wall Street overwhelmingly praised the report, with analysts raising their price targets across the board.
“By all accounts, Netflix stock is on the upswing,” Moffett Nathanson analyst Michael Nathanson, who raised his price target by $35 to $475, wrote in a new note. . “With the successful crackdown on password sharing, the rollout of low-cost advertising inventory, and continued growth in low-cost developing markets, the trauma of 2022 has become a distant memory.”
Still, some companies are warning of overvaluation, while others are advising clients to stay on the sidelines, at least for now.
The number of subscribers is expected to decrease due to emphasis on valuation
Some analysts say Netflix’s double-digit subscriber growth may not be sustainable as the streamer gradually cracks down on password sharing.
“While we expect subscriber growth to remain relatively strong, the catalysts that led to last year’s strong growth will likely remain in 2024,” Morningstar analyst Matthew Dolgin said in a note Wednesday. I think the situation will subside significantly.” “But a sober look at the level of net membership growth should not obscure how impressive Netflix is doing.”
However, despite its strong performance, the analyst, who raised his price target from $410 to $425, said, “While we expect Netflix to continue to dominate, the stock is moving ahead of the curve.” “There is,” he warned.
Moffett Nathanson expressed a similar view. “We are concerned that current subscriber growth in the US/Canada and Western European markets is being driven by the ‘intervention’ of the most avid password sharers and that this could create pockets of subscriber headwinds. ” mid-year. ”
In other words, most of the juice from password enforcement has been squeezed out.
Analyst Michael Nathanson said: “This hike, combined with a potential surge in cancellations due to a higher cap on Netflix’s price tag, could surprise the market and reset Netflix’s multiples again.” Stated. As a result, he maintained his rating on the stock at “neutral.”
Deutsche Bank also warned against the streamer’s rating, downgrading it from “buy” to “hold.”
“Netflix remains the best story in media among vertically integrated producers/programmers/distributors,” wrote lead analyst Brian Kraft. “However, we believe Netflix’s leadership position is fully priced in at this level of stock price.”
Kraft raised his price target to $525 from $460, writing: “We see little room for multiple expansions given that we believe EPS growth will peak in 2024.” added.
Bullish on WWE
Netflix’s newly announced deal with WWE was a major talking point on the earnings call, with analysts describing it as a “logical next step” in the streamer’s growth story.
In response to the news, Wells Fargo analyst Steve Cahall said, “New content = more ads and more subscribers, and NFLX’s ability to continue to seek growth beyond paid sharing will continue to grow.” It will continue to rise.” “We believe that increasing ad scale is a top priority for NFLX, as reach and frequency are needed to secure a top table spot with U.S. ad buyers.”
Cahall maintained an overweight rating and raised his price target from $460 to $650.
“WWE Raw changes the game,” added Macquarie analyst Tim Nolen. The 10-year agreement “will allow us to reach a large and engaged audience year-round and fuel Netflix’s ad sales efforts with live content from large-scale events.”
Nolen upgraded the stock from “neutral” to “outperform,” saying the company has “turned a corner” on the back of gradual growth in ad inventory and expects average revenue per member (ARM) in 2024. ) is expected to increase. He raised his price target to $595 from $410.
Still, executives said the deal with WWE does not change the company’s outlook, at least for now, to avoid investing in traditional live sports.
Netflix Co-Chief Executive Officer Ted Sarandos said in an earnings call that “WWE Raw is sports entertainment, and it’s the perfect fit for our sports business, which is sports drama.” Referring to the expansion of Japan, he said the following: You can watch documentaries on F1, tennis, golf, cycling, etc., but not particularly live sports.
Bank of America analyst Jessica Lief Ehrlich reiterated her buy rating and raised her price target to $650 from $585, writing, “I appreciate it.”[d] Given Netflix’s burgeoning advertising business and historical strength in sports entertainment, there is a strategic rationale for Netflix to expand into “sports-adjacent” programming. ”
It’s all because of advertising
Netflix said ad tier memberships grew nearly 70% quarter-over-quarter, and ad plans now account for 40% of Netflix’s total subscriptions in the markets it serves.
“Advertising remains a monetization opportunity,” wrote Deutsche Bank’s Kraft. “However, it is still early days, and in 2024 the focus will be on expanding the advertising base and strengthening international sales efforts, rather than growing advertising revenue in a meaningful way.” .”
Earlier this month, Netflix announced that its advertising tier now has more than 23 million monthly active users, an increase of 8 million since the November update.
Note that monthly active users, also known as MAUs, are not the same as paid subscribers. The company has not yet disclosed the actual number of subscribers in its advertising tier or the amount of revenue it has generated so far. MAU may include multiple users using the same account.
Macquarie’s Nolen confirmed the streamer’s plans to remove basic ad-free slots this year, explaining that the move will help streamers grow their advertising business.
“We believe that with the right strategy, Netflix can scale and certainly has the data and engagement levels to build a strong advertising business,” he said. “We see this as key for the stock to rise once password sharing takes off, as the business settles into a rhythm of price increases and subscriber numbers grow more modestly.”
Wells Fargo’s Cahall agreed, saying the streaming giant still has significant runway beyond 2024. “Netflix remains a growth stock.”
alexandra canal I’m a senior reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, Please email alexandra.canal@yahoofinance.com.
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