Goldman Sachs Raises Netflix Price Target To $490, Projects Positive Cash Flow By 2022

One of Netflix, Inc. NFLX's biggest negatives is free cash flow, but it's a concern that will subside as the company exits 2018, according to Goldman Sachs.

The Analyst

Goldman Sachs' Heath Terry maintained a Buy rating on Netflix's stock with a price target lifted from $390 to $490.

The Thesis

Netflix's cash burn totaled $2.02 billion in 2017 and will likely worsen to $3.06 billion in 2018, TheStreet said in a story quoting Terry's research report. By 2019, Netflix's cash burn will improve to negative $2.12 billion and negative $1.45 billion in 2020, the analyst said. By 2022, Terry forecast for Netflix's cash flow to turn positive as the company's multiyear investment in content  generates $500 million positive cash flow at that time.

Encouragingly, Netflix's revenue growth is now outpacing its content spend, according to TheStreet. This is a critical element to the bullish thesis for the stock, as the company needs to reduce its reliance on external content while showing investors it will be cash flow positive.

"While the widening gap between Netflix's growing income statement profits and the increasing cash flow statement deficit has seemingly had little impact on the company's valuation, we do believe that as the gap begins to reverse and Netflix's cash flow inflects positively in the coming years, NFLX shares should benefit," Terry was quoted as saying by TheStreet. 

Price Action

Netflix shares hit a new all-time high of $384.24 Wednesday and were up 4.32 percent at the time of publication. 

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Photo courtesy of Netflix.