Analyst unveils new Netflix stock outlook after shares surge

Analysts weigh in on what could happen to Netlfix's shares next.

Jan 31, 2024 - 08:30

0 7

Analyst unveils new Netflix stock outlook after shares surge

What a difference a week makes.

It was way back on Jan. 23, when Netflix (NFLX) - Get Free Report reported its fourth-quarter earnings and Wall Street was showing all kinds of love for the streaming giant.

To recap, the company added 13.2 million paid members worldwide in the quarter, up 12.8% year over year. That left it exiting the quarter with a global membership of over 260 million. Netflix's fourth-quarter sales totaled $8.83 billion, up 12.5% from one year ago and marking the fastest growth since 2021.

In addition, Netflix and T.K.O. Holdings, which owns World Wide Wrestling Entertainment, or WWE, announced a 10-year, $5 billion partnership to move “Raw'', the WWE's flagship program, from traditional cable to the streaming universe.

During the conference call with analysts, co-CEO Ted Sarandos touted the deal, which doesn’t begin until 2025, with a nod to actor and wrestling superstar Dwayne "The Rock" Johnson's signature facial move.

The news sent Netflix's stock soaring 14%, leading analysts to update their forecasts.

After adding more subscribers than expected, Netflix stock has surged.
Shutterstock

CEO touts 'drama of sport'

"If I could raise a single eyebrow one at a time, I would lean into the camera with the single eyebrow and do my best Dwayne," he said, according to a transcript of the call. "But I'm going to say instead that we are thrilled to bring this WWE live programming to our members around the world."

WWE Raw is sports entertainment, Sarandos said, "which is right in the sweet spot of our sports business, which is the drama of sport."

Netflix has had great success with sports docuseries like "Formula 1: Drive to Survive" and "Quarterback," and Sarandos cited the WWE as another move in the same direction.

"We're really thrilled with our engagement trends domestically and globally," he told the analysts. "This is really a story about viewing, moving from linear television to streaming. The story has been constant, and it continues. It's also a story about Netflix kind of leading the way with professional film and television and now games."

Wall Street firms responded enthusiastically to what they were hearing from Netflix, and several of them raised their share price targets.

The list includes Wedbush, which raised its target by $90, Jefferies, which lifted its price target by $135, and Loop Capital, which added 50 bucks to its share price number.

Macquarie analyst Tim Nollen upgraded Netflix shares from “neutral” to “outperform” in a report entitled “What’s Not to Like?” while pushing his stock price target up by $185, from $410 to $595, according to Variety.

“Netflix delivered excellent fourth-quarter results and outlook as its efforts to boost subs, revenue, and earnings are bearing fruit,” he explained. “Netflix is expanding into the live events business in a big way with the signing of WWE Raw, which can grow its audience and advertising.”

Analyst: What are buyers paying for?

While many are cheering, some analysts are pressing pause.

Deutsche Bank downgraded its rating on Netflix shares from buy to hold while simultaneously raising the price target from $460 to $525, about 3% lower than shares closed on Jan. 30.

“Netflix is still the best story in media among the vertically integrated producers/programmers/distributors,” said analyst Bryan Craft. "However, we think that Netflix’s leadership position is fully priced into the stock at these levels."

More From Wall Street Analysts:

He's not alone.

Analysts at Seaport Research Partners were among Netflix's supporters last week when the firm raised its price target by $35.

But now, seven days later, Seaport cut its rating on Netflix to neutral from buy and removed its price target for the stock.

Analysts at the firm said on Jan. 30 that they decided after Netflix shares rapidly achieved their recently increased $576 per share price target.

Shares were off 2.2% to $562 following their updated outlook.

"Whether Netflix is priced for perfection or not, we wonder who is the incremental buyer, and what are they paying for?" the analysts said.

"We think, at best, the high-incremental-margin (65%) scenario, using our aggressive advertising case of 50% of subs taking the ad tier at current 7.6% TV time usage share going out to 2027, layered on top of our estimated unaffected share price value of about $271 could imply roughly 6% of upside from here," they added.

Seaport also noted that much of the implied ad opportunity has lifted the streaming giant's valuation far above the normal range.

Original Post