On Friday, UBS has increased its price target for Netflix (NASDAQ:NFLX) shares to $825 from the previous $750 while retaining a Buy rating on the stock. The firm's analyst cited Netflix's advantageous position amidst a more rational direct-to-consumer (DTC) competition landscape, leading to the adjustment in the price target (PT). The third quarter (Q3) results for the company surpassed expectations, with operating income (OI) being 5% higher than anticipated.
Additionally, the analyst highlighted Netflix's strong subscriber growth and revenue increase, with 5.1 million new subscribers in Q3, exceeding both UBS's estimate of 4.9 million and the street's 4.6 million. The subscriber count is projected to reach 8.8 million in the third quarter of 2023.
The company's revenue grew by 21% year-over-year (yoy) on a foreign exchange neutral (FXN) basis, slightly down from the 22% growth seen in the second quarter (Q2). For the fourth quarter (Q4), Netflix management anticipates a sequential rise in net subscriber additions, with UBS's estimate at 9 million, compared to the previous consensus of 7 million and a projected 13 million in Q4 of 2023. Stable average revenue per membership (ARM) growth is expected to contribute to a 17% revenue increase in Q4 FXN, while operating income is forecasted to grow around 50% yoy.
Management's expectations for full-year revenue growth have been revised upward to 15%, from the prior guidance of 14-15%, and the operating income margin is projected to reach 27% based on January 2024 foreign exchange rates, up from the previous 26%. This represents a significant 700 basis points increase yoy. Looking ahead to 2025, Netflix is expected to achieve 11-13% revenue growth and a 28% margin, aligning with street estimates.
The company plans to balance expansion with investment, laying the groundwork for future growth through advertising, gaming, and live content. UBS estimates this strategy will lead to over 20% operating income growth, compared to an anticipated 50%+ in 2024.
In other recent news, Netflix has been making notable strides in the streaming industry. The company exceeded expectations in the third quarter by adding 5.1 million subscribers, surpassing the forecasted 4 million. This achievement was accompanied by robust earnings per share of $5.40, higher than the anticipated $5.12. Revenue figures also outperformed expectations, reaching $9.825 billion against the forecasted $9.769 billion.
Analyst firms Piper Sandler and KeyBanc have shown confidence in Netflix's future performance, raising their price targets to $840 and $785 respectively, while maintaining Overweight ratings. These adjustments follow Netflix's recent financial results and promising guidance for 2025. The company anticipates 11%-13% year-over-year revenue growth, primarily driven by subscriber growth, without the need for significant price hikes.
In addition to these developments, Netflix is also diversifying its revenue streams by exploring ad-supported plans and live events. The company is set to stream a boxing match featuring YouTube personality Jake Paul and boxing legend Mike Tyson in November. These recent developments highlight Netflix's strong execution strategy and promising outlook.
InvestingPro Insights
Netflix's strong performance and positive outlook, as highlighted in the UBS analysis, are further supported by real-time data from InvestingPro. The company's market capitalization stands at an impressive $295.12 billion, reflecting its dominant position in the streaming industry. Netflix's revenue growth remains robust, with a 13.0% increase over the last twelve months and a notable 16.76% quarterly growth in Q2 2024. This aligns with the UBS report's emphasis on the company's strong subscriber growth and revenue increase.
InvestingPro Tips indicate that Netflix is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.61 for the last twelve months as of Q2 2024. This suggests that the stock may be undervalued considering its growth prospects, supporting UBS's bullish stance and increased price target.
Additionally, Netflix's profitability metrics are impressive, with a gross profit margin of 43.84% and an operating income margin of 23.82% over the last twelve months. These figures underscore the company's ability to maintain strong margins while investing in growth initiatives, as mentioned in the UBS report.
For investors seeking more comprehensive insights, InvestingPro offers 14 additional tips for Netflix, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.