Jefferies analysts said Thursday they remain bullish on Netflix (NASDAQ:NFLX) stock, based on views that advertising, price hikes, and the company’s password sharing crackdown “can sustain low- to mid-teens rev growth over the next few years.”
Analysts believe that ceasing subscriber disclosures will benefit NFLX by shifting investor focus to the robust low to mid-teens revenue compound annual growth rate (CAGR), outweighing concerns over short-term subscriber trends.
“We potentially see 2025 rev guidance as a catalyst for the stock, as the Street's ~12% growth (vs. 13-15% in FY24) looks conservative, given ad rev should become more material, price hikes seem likely, and live content/events could act as a new subscriber and engagement driver,” analysts said in a note.
Furthermore, Jefferies views Netflix’s crackdown on password sharing as a driver for subscriber growth in 2024 and 2025, expecting significant gains despite the upcoming removal of subscriber disclosures.
They predict over 6 million new United States and Canada (UCAN) subscribers in 2024 and an additional 3.1 million in 2025, capitalizing on the ad-supported tier.
Moreover, optimism is growing for NFLX’s advertising business as well, highlighted by a surge in ad-tier monthly active users and ad supply exceeding demand.
Analysts think advertising revenues could exceed $5.5 billion in the coming years, potentially accounting for 10-15% of NFLX's total revenue, leveraging its 8% share of US viewing hours.
Long term, Jefferies sees the potential for NFLX’s free cash flow (FCF) to double and earnings per share (EPS) to triple in the following five years.
“Our LT scenario analysis implies there could be 15%+ upside to the stock based on a 10%+ 5yr rev CAGR, a 25%+ FCF margin (vs. 18% in FY24), and a 22x FCF multiple,” the firm wrote.
Jefferies maintained a Buy rating on NFLX stock but slashed the target price from $700 to $655.
NFLX shares rose 2.4% Thursday.