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Netflix Inc. has regained the momentum of subscribers as the pandemic has progressed, although that may not be the biggest highlight of the company’s latest earnings report.
For years, subscriber metrics have been the main driver of Netflix’s stock
NFLX
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but lately the company has also made progress financially. Netflix predicted in its Tuesday letter to shareholders that it expects to break even based on free cash flow for the full year and noted that it could possibly resume share buybacks as he did so from 2007 to 2011.
The stock hit an intraday high of $ 577.77 in the first hour of trading on Wednesday and was on track to reach a record close, surpassing the previous high of $ 556.55 set on September 1. Shares rose 14% and were on the right track. for their biggest single-day gain after an earnings report since October 18, 2016, when stocks gained 19%.
“We think the serious discussion of whether Netflix could ever generate cash has been over for some time, but now it’s official,” Loop Capital analyst Rob Sanderson wrote in a note to clients, while reiterating a buy note and a target price of $ 650.
Opinion: Netflix reaches an important pivot point in its pioneering journey
The new financial momentum, along with the big subscriber beating, helped Netflix earn an upgrade from Wells Fargo analyst Steven Cahall, who wrote that he is now a “card carrying bull” after being skeptical about the title.
“The pandemic has fostered stronger subscriber acquisition, but what really impressed is the way the unit economy is going,” Cahall wrote. “The company has proven that unit profitability is starting to be attractive for submarines 200mm and larger. This creates a big divide as we currently only anticipate one other nearby competitor in Walt Disney Co.
Dis
Cahall raised his Netflix stock price target to $ 700 from $ 510 while increasing his overweight rating on a par for weight.
Bernstein analyst Todd Juenger wrote that while he wasn’t a fan of the “constant” comparisons between Netflix and Disney, he couldn’t help but notice a “glaring difference” in the financial outlook for the business of respective streaming companies. Disney, which is newer to the streaming world, could see four to five years of negative free cash flow for its Disney + service, and the platform has half the number of Netflix subscribers that generate half of the average revenue per user.
He titled his note to customers “As Disney Suspends Its Dividend, Netflix Plots A Buyout,” while reiterating an outperformance rating on Netflix and increasing its price target to $ 671 for $ 591.
Full results news: Netflix surpasses 200 million subscribers with a booming year-end
Evercore ISI analyst Lee Horowitz wrote of a “powerful shareholder return story on the horizon” as investors debate what might be in store for share buybacks.
“While this has always been a potential source of upside, this is the first time in recent history that management has launched the idea of more shareholder returns and focusing on generating FCFs,” wrote Horowitz, who has an online rating and $ 460 price target on Netflix stocks. “In this vein, a more reasonable multiple income framework for Netflix could become a reality in the short term if Netflix were to withdraw a significant portion of its free float in the years to come.”
The latest Netflix results confirmed for Pivotal Research Group analyst Jeff Wlodarczak that a substantial opportunity remains for the streaming giant.
There had been doubts about the amount of lead remaining for Netflix in developed markets, but the company added nearly 900,000 new net subscribers in the US and Canada, which is higher than the FactSet consensus expectation of 371,000. This dynamic “highlights that the ultimate penetration of Netflix services globally may be higher than expected,” wrote Wlodarczak, who raised his target for the share price to $ 750 from $ 660 while maintaining a purchase note.
Yet skepticism has remained elsewhere on Wall Street. “We’ve always been wrong about Netflix, but optimism about the company’s potential to generate free cash flow growth of over $ 1 billion per year seems out of place to us,” wrote the Wedbush analyst Michael Pachter, who rates the stock’s underperformance with a target price of $ 340.
Bernie McTernan, analyst at Rosenblatt Securities, wrote that while Netflix’s expectation that it will no longer have to rely on external funding is “good” for the company and the stock, he still has concerns about the flow. of free cash flow “given the risk of rising content costs that we are seeing. growing competition.
He reiterated the neutral rating on the stock, but raised his price target to $ 450 from $ 425.
At least 21 analysts raised their price targets for Netflix stocks after Tuesday’s report, according to FactSet. Of the 41 analysts tracked by the service who cover Netflix stocks, 28 have buy ratings, nine hold ratings and four sell ratings, with an average price target of $ 614.61.
Netflix shares have gained 69% in the past 12 months as the S&P 500
SPX
increased by 15%.
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