Wolfe Research has maintained its Peerperform rating on Netflix (NASDAQ: NASDAQ:NFLX), emphasizing the potential for a significant portion of global pay-TV dollars to transition to streaming services. Wolfe Research highlighted that Netflix could capture a substantial share of this shift, considering its current ~6% share of industry revenue.
The firm acknowledged Netflix's continued subscriber growth and monetization, which have contributed to its year-to-date (YTD) stock performance, rising +41.2% and surpassing both its peer group, which saw a decrease of -2.3%, and the S&P 500's increase of +22.5%.
After the market closed on Friday, Netflix reported its 3Q'24 results, leading to a +4.8% increase in after-market trading. On a trailing twelve-month (TTM) basis, Netflix's stock has surged +93.3%.
Despite these positive trends, Wolfe Research cautioned about risks to medium-term revenue estimates as the benefits from paid sharing diminish. The firm pointed out that Netflix's current valuation necessitates a prolonged period of double-digit growth within a competitive industry for the stock to outperform.
Wolfe Research also noted Netflix's premium valuation multiples, with CY25E EV/EBITDA at 24.1x and a 37x P/FCF, suggesting that these high multiples leave little room for error in growth expectations. According to the firm, the high valuation does not provide a margin of safety to absorb potential reductions in growth expectations.
In other recent news, Netflix's third-quarter earnings showed an impressive addition of 5.1 million new subscribers, surpassing expectations. The company's management expects a sequential rise in net subscriber additions for Q4, with a projected 13 million in Q4 of 2023.
Netflix's full-year revenue growth expectations have been revised upward to 15%, and the operating income margin is projected to reach 27% by 2024. Looking ahead to 2025, Netflix anticipates 11-13% revenue growth and a 28% margin.
Morgan Stanley (NYSE:MS) recently upgraded Netflix's price target to $830, reflecting confidence in the streaming service's potential to boost earnings by 20-30% annually over time. This is attributed to Netflix's strategy to introduce additional growth mechanisms such as paid sharing options, advertising, live content, and gaming offerings. Bernstein and BMO Capital also raised their price targets for Netflix to $780 and $825, respectively, citing positive outlooks for the company's growth.
However, Phillip Securities downgraded Netflix's stock from Buy to Neutral, despite raising the price target to $695. The firm noted robust revenue and profit growth but shifted to a neutral stance due to the recent strength in Netflix's share price.
InvestingPro Insights
Netflix's strong market position and financial performance, as highlighted in the article, are further supported by recent InvestingPro data. 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.
InvestingPro Tips reinforce the article's observations about Netflix's valuation. The company is indeed "Trading at a high earnings multiple," with a P/E ratio of 42.36. This aligns with Wolfe Research's caution about Netflix's premium valuation. However, it's worth noting that Netflix is also "Trading at a low P/E ratio relative to near-term earnings growth," suggesting potential value despite the high multiple.
The article's mention of Netflix's strong stock performance is corroborated by InvestingPro data, showing a remarkable 98.63% price total return over the past year. This outperformance is even more impressive when considering the "High return over the last decade" highlighted in the InvestingPro Tips.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Netflix, providing a deeper understanding of the company's financial health and market position.
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