Netflix Likely For Upsurge by FY25 As Subscribers Lap Up Paid Sharing: Oppenheimer

Oppenheimer analyst Jason Helfstein reiterated Netflix Inc NFLX with an Outperform and a $515 price target.

The analyst analyses the positive impact of paid sharing and advertising through FY25. These initiatives should boost revenue by ~40% vs. FY22 at very high incremental margins. 

Investors are underappreciating the complexity of the multiple drivers, as he saw 2% of the benefit so far. The analysis indicates a clear path to double-digit revenue growth, which should support ~25x PE.

Helfstein estimates revenue from paid sharing and advertising subscribers will increase from 1% in 2Q to 17% in FY25. Recent commentary suggests ARM (average revenue per membership) will likely be flat Y/Y in 3Q. More importantly, recent results show that paid sharing and advertising plans drive new subscribers. 

His estimates imply Netflix directly recaptures 46% of the total estimated 100 million account sharers by the end of FY25. Given that the partial rollout of paid sharing yielded ~6 million subscribers in one month, he believes there is an upside to his above consensus FY24 net add estimate of ~24 million.

Between underlying core growth, paid sharing & advertising will likely generate 63 million additional subscribers by FY25 vs. FY22, representing 27% higher total subscribers, with ARM 11% higher. 

Furthermore, his estimates imply an FY22 – FY25E GAAP operating income CAGR of 27%, with the FY25E absolute number 107% higher vs. FY22. 

The ~15% sell-off since reporting 2Q (vs. Nasdaq down 6%) creates a buying opportunity. 

Helfstein's model conservatively implies 3Q "core" net adds (ex-advertising & paid sharing) of only 500K vs. the FY21 - FY22 average of 3.4 million. 

The analyst lowered his FY24E and FY25E net adds by 1.7 million and 4 million but increased UCAN and EMEA subscribers by 3% and 1%, respectively. 

The analyst lowered his FY24E and FY25E revenue by 2%, while GAAP EPS remained unchanged. 

He lowered his FY24E and FY25E FCF by 7% and 5%, but still 19% and 15% above Street, which is conservative given commentary of flat content spend in FY24 vs. FY22 compared to his current +$1 billion. His FY25E net income is ~10% above FCF.

The analyst reiterated Q3 revenue of $8.5 billion and EPS of 3.53 (vs. prior $3.52).

He sees Q4 revenue of $9.0 billion (vs. prior $8.9 billion) and EPS of $2.43 (vs. prior $2.40).

Price Action: NFLX shares traded higher by 4.60% at $432.15 on the last check Wednesday.