Netflix ‘s better-than-expected quarterly earnings has analysts cheering the company’s new subscriber growth initiatives, keeping them optimistic on the stock’s growth potential. The streaming giant topped earnings estimates and matched revenue forecasts during the third-quarter. Password-sharing crackdown efforts and its new ad-supported tier supported the subscriber boost. Netflix added more than 8 million global subscribers during the quarter, topping Wall Street’s forecasts of approximately 5.5 million, according to StreetAccount — marking the highest quarterly net add total since the second quarter of 2020. The company also announced it would be increasing prices on its basic and premium plans in the U.S. starting Wednesday. “They crushed it. The management deserves an Emmy for managing investor expectations, but the results probably surprised them as well. … In short, it was a good quarter,” Bernstein analyst Laurent Yoon said in a note. Yoon increased his price target to $390 from $375, implying 12.6% upside potential from Wednesday’s close. Shares already rallied more than 13% Thursday during premarket trading, surpassing his price target. NFLX 1D mountain NFLX rallies However, the analyst remained slightly cautious and kept his market-perform rating due to questions on the company’s longer-term growth plans. “Longer-term … we return to the fundamental question — what is the narrative beyond near-term sub growth driven by paid-sharing? What does 2025 and beyond look like? Organic sub growth will still mostly be driven by international markets, which will likely be capped based on local content availability,” said Yoon. Goldman Sachs was also one of the few firms with a muted neutral rating. Analyst Eric Sheridan reiterated his price target of $400 per share, suggesting 15.5% upside potential. Other analysts on the Street were more bullish. Several increased their price targets while reiterating their prior ratings on the stock. “Despite NFLX’s seemingly cautious intra-quarter margin & ARM comments that resulted in a lot of (unnecessary) volatility, 3Q results were strong across most dimensions,” JPMorgan analyst Doug Anmuth wrote in a note to clients. “Paid Sharing is clearly working, as evidenced by the 8.8M net adds in 3Q, which is the 2nd straight quarter of strong Paid Sharing bump & NFLX’s highest ever net adds in a 3Q.” Anmuth raised his price target to $480 from $455, implying shares could jump 38.6% from Wednesday’s close. Deutsche analyst Brian Kraft said Netflix’s “uplifting 3Q/4Q guide sends bears back into hibernation.” Kraft reiterated his buy rating on shares. Although Kraft notched down his price target to $460 from $485, which suggests 32.8% upside, he noted that his forecast was “well above consensus” heading into the earnings announcement — and remains above the pre-earnings consensus. “Management positively surprised us today in announcing that they expect 2024 OI margin to be in the 22-23% range, versus Bloomberg consensus of 22.1% and in the face of significant concerns over margin next year in light of management’s recent commentary at an investor conference, which was interpreted by many investors as ‘talking down margins’ in 2024 and beyond,” Kraft said. Several firms have their price targets reaching $500 and higher. UBS, Citi and Evercore all reiterated their price targets of $500 on shares, while Bank of America kept its $525 target price. Netflix is the “main beneficiary of market rationalization” in the direct-to-consumer market, according to UBS analyst John Hodulik. He added that the company is “nowhere near [its] margin ceiling” and sees the company still in the early innings on advertising. Hodulik maintained his buy rating on shares. Citi and Bank of America were also bullish and reiterated their buy ratings. “Supported by its world-class brand, leading global sub base and position as an innovator we believe Netflix is poised to outperform,” said Bank of America analyst Jessica Reif Ehrlich. She also forecasts the password sharing crackdown to drive member growth throughout the next several quarters. Evercore analyst Mark Mahaney is similarly optimistic that the ad-supported and password-sharing initiatives will drive a material reacceleration in revenue and per-share earnings growth. He added that shares are also trading at a “highly reasonable” valuation and reiterated his outperform rating. “We continue to believe that Netflix is going into these GCI catalysts from a position of strength, as the Global Streaming Leader in terms of Revenue, Subs, Viewing Hours, Content, Profits, etc … at a time when competitive intensity is declining … and competitors are raising prices in the hunt for profitability,” Mahaney said in a Wednesday note. “Further[more], NFLX is proving out that Streaming – at least for the scaled, industry leader – can be a very good business – double-digit revenue growth, 20%+ Operating Margins with 40%-50% incremental margins, and sustainable mid- teens & rising FCF margins ($6.5B in ’23).” — CNBC’s Michael Bloom contributed to this report.
