3 Reason To Buy Netflix Stock Right Now, According To Jefferies

Despite near-term volatility related to the coronavirus, Netflix Inc NFLX is still winning buyers.

The Netflix Rating

Jefferies analysts Alex Giaimo and Brent Thill initiated coverage of Netflix with a Buy rating and a $520 price target.

The Netflix Thesis

Their bullish call is based on three factors.

First is an underappreciated addressable market with potential to sustain double-digit subscription growth. Jefferies expects subscriber numbers to drive 18% compound annual revenue growth through 2023 — and that’s with just 28% international penetration.

“Importantly, our revenue growth assumes a 15% subscriber CAGR and just a 3% ARPU [average revenue per user] CAGR, mitigating the bear thesis that sizable price hikes are necessary,” the analysts wrote in a note.

Second, margins continue to improve, which bodes well for free cash flow.

“We believe NFLX will soon reach sustained FCF profitability, in which it will be able to self-fund content and become less reliant on tapping the capital markets,” they wrote, forecasting more than $10 billion in FCF by 2026.

Third, Netflix has demonstrated its capacity to thrive in an evolving market and retain first-mover advantage with a number of features. According to Jefferies, the threat of competition to subscriber growth and pricing power is exaggerated.