On Monday, JPMorgan (NYSE:JPM) reiterated its Overweight rating on Netflix (NASDAQ:NFLX) shares, maintaining a price target of $610. The firm's positive outlook is based on Netflix's significant scale, with 260 million households subscribed and high engagement rates, averaging around two hours of viewing per day. The analyst believes that Netflix's diverse content offerings will help solidify its position as the go-to platform for long-form video content globally.
Netflix's shares have seen a 14% increase since the company reported strong fourth-quarter earnings, outpacing the S&P 500's 3% rise during the same period. JPMorgan anticipates that Netflix will accelerate revenue growth in 2024, expand margins, and drive multi-year free cash flow growth. The Paid Sharing feature, which contributed to approximately 30 million net additions in 2023, is expected to become a standard part of the business model.
The firm predicts that Netflix's growth in 2024 will be more evenly distributed between subscriber numbers and pricing. Following targeted price increases in the United States, United Kingdom, and France in the fourth quarter, Netflix is expected to implement price hikes in other markets, eventually returning to a regular pricing cadence. JPMorgan also highlighted the importance of building the Ad tier and believes that changes in plans and pricing, partner deals, and marketing efforts will support growth.
Despite some concerns expressed post-earnings about the sustainability of Paid Sharing's contribution, earnings estimates based primarily on margins, and valuation questions, JPMorgan remains bullish. The firm's confidence is underpinned by expectations of accelerating revenue growth led by organic growth, Paid Sharing, and price increases; consistent operating margin expansion; a multi-year ramp-up in free cash flow; Netflix's strong position in the streaming market; and the potential for Netflix to become the default choice for long-form video content worldwide.
JPMorgan's December 2024 price target of $610 for Netflix is based on approximately 28 times the estimated 2025 GAAP earnings per share of $21.65, which translates to about 31 times the estimated 2025 free cash flow of $8.5 billion. The firm's analysis projects an average growth of almost 15% for Netflix's revenue, 27% for operating income, and nearly 35% for GAAP EPS for 2024 and 2025.
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