Zinger Key Points
- Benchmark's Harrigan maintains a Sell rating on Netflix, citing member growth risks.
- Analyst expects Netflix's long-term growth to depend on pricing and new initiatives like gaming and ads.
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Benchmark analyst Matthew Harrigan reiterated Netflix Inc NFLX with a Sell and a $545 price target.
The analyst has Netflix achieving ~431 million global members in 2033 with a 35%+ operating margin.
Harrigan noted that in the intermediate term, although likely not near-term, member growth risks versus his forecast may gear to the downside with sensitivities to ten-year member installed base and operating margin.
Although he regarded Netflix as more of a media than a tech stock, the $545 valuation reflects a fair 18.2 times 2025 EBITDA multiple and a fair 14.1 times target EBITDA multiple even in 2033 at the end of the forecast price target.
The analyst expects top line and profitability growth will increasingly depend on pricing and newer initiatives such as AVOD and extensions like gaming as volume growth moderates.
As per Harrigan, the market will be especially attentive to any price hike announcements when Netflix reports earnings after the close this Thursday.
To justify its current ~$715 stock price level, the analyst estimated Netflix would have to generate a 5.5% pricing CAGR through 2033 despite mounting consumer wallet resistance to price hikes and member growth concentration in much lower-price point emerging markets.
Benchmark’s baseline forecast also allows for 430 million+ global members in 2033, versus ~277 million currently, at a 35%+ operating margin. The analyst calls the margin assumption more secure than the member forecast.
Harrigan said advertising contribution is presently relatively nascent, as the ability to monetize rapidly growing advertising inventory is lagging in scaling momentum.
The analyst noted that Benchmark’s third-quarter 2024 estimates for Netflix reflect a moderating tailwind, especially from paid sharing and the still nascent AVOD contribution, while also reflecting foreign currency movements.
Harrigan highlighted that Netflix is still constructing its in-house ad tech platform for a broad launch in 2025, although it will continue to work with Microsoft’s Xandr on the supply side.
He said that Netflix is also testing a simplified and more intuitive TV home page that would enable easier discovery of content, especially by genre.
Britain’s The Telegraph just published an interesting article on the U.K. streaming market and efforts by the public BBC and other broadcasters to better compete with Netflix, precisely the possibility of opening up the BBC’s iPlayer to include shows from other U.K. channels, Harrigan added.
Harrigan projected third-quarter revenue of $9.79 billion and EPS of $5.18.
Price Action: NFLX stock is down 0.66% at $708.30 at last check Tuesday.
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