Netflix Q1 Earnings Inspire Analyst To Raise Price Target, Praise Ad Tier Scale

Netflix Inc NFLX is gearing up to release its first-quarter earnings on April 18.

All eyes are on the streaming giant amid rising anticipation and optimistic projections. Netflix stock has outperformed the S&P 500 Index year-to-date by good measure, gaining over 31% while the S&P 500 index is up more than 9%.

The Netflix Analyst

Analyst Doug Anmuth from JPMorgan has shared insights that paint a bullish picture for Netflix, attributing the positive outlook to several key factors. Doug has an Overweight rating on the stock and raised his price target from $610 to $650 a share.

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The Netflix Thesis

Strong Growth Prospects and Revenue Acceleration

Anmuth highlighted Netflix’s potential to accelerate revenue growth throughout 2024.

Robust organic growth, the innovative Paid Sharing initiative, and strategic price adjustments are expected to drive this forecast.

Netflix’s solid leadership position in the streaming landscape and a favorable environment for content acquisition underpin this projection.

Paid Sharing and Subscriber Trends

Anmuth also emphasized the significant impact of Netflix’s Paid Sharing initiative, which has contributed to strong subscriber and revenue growth.

Despite capturing low-hanging fruit in 2023, Paid Sharing still presents meaningful monetization opportunities for Netflix. Estimates suggest potential growth in borrower conversion rates.

“Netflix monetized ~22M borrowers at the end of 2023” and “can monetize 36M borrowers by the end of 2024 & 43M by the end of 2025,” said Anmuth.

Additionally, healthy organic subscriber trends further bolster Netflix’s position in the market.

Content Slate and Advertising Strategy

“The content slate continues to support strong engagement, with notable 1Q content including Avatar: The Last Airbender, Damsel, Fool Me Once, Griselda, Lift, Society of the Snow, The Gentlemen, & 3 Body Problem,” noted Anmuth.

While advertising revenue isn’t expected to make a significant contribution until 2025, Netflix is actively ramping up its ad tier scale through strategic pricing and marketing maneuvers. According to Anmuth, the company “needs to reach ~50M ad tier MAUs by year-end, which could prove conservative when factoring in bundled sub shifts w/T-Mobile & others.”

Anmuth sees this focus on ad tier expansion as a key priority for the company’s future growth trajectory.

Optimism Surrounding Earnings

“We model average 2024 & 2025 growth of 15% for FXN revenue, almost 30% for operating income, & 35% for GAAP EPS,” Anmuth said. Anmuth’s projections indicate optimism surrounding the company’s earnings and growth potential. Despite elevated near-term expectations,

Anmuth remains bullish on Netflix, projecting a steady increase in net adds and revenue throughout 2024. These estimates couple with expectations for margin expansion and steady operating income growth, further reinforcing the company’s position as a market leader.

Anmuth’s bullish stance drives an increased price target of $650, underpinned by expectations of continued revenue acceleration and margin expansion.

As Netflix prepares to unveil its earnings report, investors remain optimistic about the company’s future trajectory in the streaming landscape.

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