Netflix Analyst Sees Advertising Opportunity, Streaming Dominance Driving Stock To $325

Following a deep dive into Netflix Inc's NFLX advertising opportunity, Oppenheimer analysts see significant upside potential in the streaming giant.

What Happened: Oppenheimer analyst Jason Helfstein assumed coverage of Netflix with an Outperform rating on Monday and announced a $325 price target after a consumer survey combined with a deeper dive into Netflix’s advertising opportunity showed that the company’s upcoming ad-tier launch should help to fuel future growth. 

"Supported by our proprietary survey we believe that the launch of a lower priced ad tier will accelerate subscriber growth, drive ARPU and slow subscriber churn," Helfstein wrote in a note to clients. 

While the new ad-tier will attract some first-time subscribers, the larger opportunity is to re-engage churned subscribers, the Oppenheimer analyst said.

The consumer survey showed that 43% of churned U.S. subscribers would re-subscribe at lower prices. Furthermore, 30% of consumers who do not currently have a Netflix subscription would subscribe at a lower price. However, Helfstein notes that approximately 70% of current base subscribers and about 50% of standard and premium subscribers would downgrade to the new ad-supported tier.

The Oppenheimer analyst points out that Netflix still has the highest viewership in the industry. July marked the first month that streaming surpassed cable in U.S. viewership, according to Nielsen data. 

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Helfstein sees further upside potential in shared accounts, cloud savings and gaming, but the advertising opportunity alone is being undervalued by the Street, he said. The Oppenheimer analyst expects Netflix's global advertising revenue to reach $4.6 billion by 2025.

The $325 price target implies a valuation of 20 times 2023 EBITDA. Helfstein notes that the stock is currently trading around 15.7 times EBITDA. 

"We believe this 28% premium is justified given NFLX's streaming dominance and advertising opportunity," the Oppenheimer analyst said.

NFLX Price Action: Netflix has a 52-week high of $609.99 and a 52-week low of $162.71.

The stock was down 0.17% at $240.53 at the time of publication, according to Benzinga Pro.

Photo: yousafbhutta from Pixabay.