Netflix Stock to Soar - Bank of America Analyst Cites Strong Free Cash Flow and Global Dominance As Catalysts

B of A Securities analyst Jessica Reif Ehrlich maintained Netflix Inc NFLX with a Buy and raised the price target from $525 to $585.

The analyst noted that substantial free cash flow generation should help drive shareholder returns (NFLX increased its buyback authorization for an additional $10 billion in October).

Supported by its world-class brand, leading global subscriber base, and innovative position, Ehrlich noted that Netflix is poised to outperform.

It is becoming increasingly clear that Netflix has won the “streaming wars.” 

Over the last 18 months, changing market dynamics, investor focus on profitability, and various talent strikes have made several media companies re-evaluate their streaming aspirations. 

These changes have acknowledged that not all media companies can achieve Netflix’s global reach and scale in streaming. Overall, this is a win-win for the industry and Netflix. 

Also Read: Netflix Games Download Surge by 180%, Signaling Success in Gaming Expansion

For Netflix, the availability to purchase third-party content will likely drive additional efficiencies with its content spending going forward as the company no longer needs to finance as much higher-risk new production and can supplement more concentrated “bets” with well-known, established content. 

Notably, the recent top 10 list from Netflix has been dominated by third-party content, underscoring the high hit rate that this content has on its platform.

Ehrlich noted that there is still runway from NFLX’s crackdown on password sharing in the near term and the advertising video on demand (AVOD) opportunity (medium and long term).

At the $6.99 price point, the ad-supported tier provides an attractive, low-priced option for “borrowers” who still wish to access the Netflix service. The broader crackdown on password sharing will be an accelerant to NFLX’s ad-supported tier, the analyst noted. 

Recently, Netflix announced that it has 23 million active users on the ad-supported tier, up from 15 million in November to 5 million in May. The analyst remained bullish on the longer-term opportunity in AVOD. NFLX’s pricing strategy should drive scale and new bundling agreements to lower the retail price for consumers and decrease marketing spend and churn for Netflix.

Ehrlich projected fourth-quarter revenue of $8.79 billion (versus $8.69 billion previously) and operating income (OI) of $1.22 billion (versus $1.16 billion previously). 

The analyst also adjusted his CY24 revenue and OI to $39.5 billion and $9.2 billion (from $39.2 billion and $9.0 billion).

Notably, her net add forecasts of +9 million in 4Q and +19.7 million in CY24 are unchanged.

Price Action: NFLX shares are trading lower by 0.31% at $479.776 on the last check Wednesday.

Also Read: Netflix’s Surging Ad Subscribers Ignite Optimism, Analyst Bumps Up Price Target By 26%

Photo via Shutterstock