Netflix Inc NFLX is well suited for subscriber growth in the second quarter and future, an analyst says ahead of the streaming giant's second-quarter earnings.
The Netflix Analyst: Bank of America analyst Jessica Reif Ehrlich reiterated a Buy rating on Netflix. She also raised the price target from $700 to $740.
The Analyst Takeaways: Netflix reported 9.33 million net subscriber adds in the first quarter. Ehrlich now expects 4.6 million net subscriber adds for the second quarter.
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Ehrlich forecasts $9.49 billion in revenue for Netflix in the second quarter and sees several long-term growth drivers in place at the Los Gatos, California-based company.
"Supported by its world-class brand, leading global subscriber base, position as an innovator and increased visibility in growth drivers, we believe that Netflix should continue to outperform," Ehrlich said.
Netflix shares are up 16% since reporting first-quarter earnings. This could be led by third-party data showing strong second-quarter subscriber figures, greater appreciation for Netflix's market position and scale, and optimism around the company's ad-supported plan.
"We anticipate a significant advertising ramp in '25 and '26,” she added.
Ehrlich says an ad-supported plan could get increased optimism thanks to live sports and sports adjacent programming like NFL games on Christmas Day.
"Overall, these dynamics support our bullish thesis for longer-term potential which we expect will be driven by healthy revenue growth, continued margin expansion and outsized growth over the next several years."
Netflix reported 40 million monthly active users for its ad-supported tier in May. Ehrlich sees the number coming from password sharing crackdown and increased prices for the ad-free tiers.
"We continue to view advertising as a longer term story and do not expect a material revenue contribution until 2025-especially given the glut of new inventory coming to market alongside the backdrop of a mixed advertising environment."
NFLX Price Action: Netflix shares are up 1% to $656.53 on Monday versus a 52-week trading range of $344.73 to $697.49.
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