Netflix's Surging Ad Subscribers Ignite Optimism, Analyst Bumps Up Price Target By 26%

Oppenheimer analyst Jason Helfstein maintained Netflix Inc NFLX with an Outperform and raised the price target from $475 to $600.

On Wednesday, NFLX’s President of Advertising announced ad Monthly Active Users (MAUs) >23 million vs. 15 million in November & 5 million in May, indicating an accelerating pace of ad subscribers. 

Near-term, the acceleration suggests 4Q net adds above guidance and Street. Over the medium-term, the analyst noted the pace of acceleration offers plenty of room for subscriber growth in 2024 and is conservatively raising his 4Q and FY24 net adds to +10 million and +24 million vs. prior +9 million and +21 million and Street’s +9 million and 18 million, respectively. 

Assuming year-end 2024 ad MAU of 50 million (~25 million subscribers), the analyst now estimates $40 billion and 46 billion of total revenue (+20% and +14% Y/Y) in FY24 and FY25 vs. Street’s $38 billion and $43 billion (+14% and +11%). 

Assuming cash content spend of $19.5 billion and $21 billion in FY25 and FY26 vs. $17 billion guidance, leaving ~$17.5 billion of cash after $14.5 billion of buybacks. 

The price target assumes 29x FY25 EPS vs. peers at 24x but is growing 32% faster. 

The analyst increased his FY24E and FY25 revenue by 3% and 5%, with subscribers 1% and 2% higher and average revenue per membership (ARM) 2% and 3% higher. 

The analyst also raised FY24 and FY25 EBITDA & free cash flow by 4% and 6%, with GAAP EPS by 5% and 7% higher. He also introduced FY26 estimates.

The analyst projected Q4 revenue and EPS of $8.7 billion (unchanged from prior vs. consensus of $8.71 billion) and $2.17 (prior $2.15 vs. consensus $2.21)

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

Price Action: NFLX shares are trading lower by 0.05% at $492.01 on the last check Friday.

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