Netflix (NFLX) witnessed a significant upswing in its stock, surging as much as 16% on Thursday, propelled by stellar earnings that outperformed forecasts on both revenue and profit fronts. Additionally, the streaming giant saw a remarkable surge of nearly 9 million new subscribers in the quarter.
The announcement of price hikes in the US, UK, and France further buoyed investor confidence. Basic and Premium plans will now be priced at $11.99 and $22.99, respectively, up from the previous $9.99 and $19.99 rates. Meanwhile, the $6.99 ad-supported plan and $15.49 Standard plan will maintain their current pricing.
MoffettNathanson analyst Michael Nathanson hailed the price increases as a significant move, highlighting their potential to bolster Netflix’s Average Revenue per Membership (ARM), especially among households less sensitive to pricing and advertising.
Nathanson, while maintaining a Neutral rating and a price target of $390 on the stock, raised revenue projections for the fourth quarter and full-year 2024 by 2.6% and 3.5%, respectively, attributing the increase to the pricing adjustments. He anticipates an 8% to 9% surge in ARM in the affected markets, assuming no significant shifts in subscriber behavior.
Although ARM experienced a 1% decline YoY in the third quarter, Netflix anticipates the pricing changes to substantially bolster this metric in the coming quarters.
Wells Fargo analyst Steve Cahall expressed optimism regarding Netflix’s valuation, contingent on the company’s successful execution. He reiterated an Overweight rating and a $460 price target.
The price adjustments are also poised to enhance operating margins, a pivotal profitability metric. The company’s margin for the quarter exceeded expectations at 22.4%. Netflix projects a full-year operating margin of 20%, which falls at the higher end of the previous forecast of 18% to 20%.
Bank of America analyst Jessica Reif Ehrlich welcomed the increased clarity in Netflix’s outlook, expressing confidence that investors will respond favorably. She reiterated a Buy rating and set a price target of $525.
Keybanc analyst Justin Patterson upgraded the stock to Overweight from Sector Weight with a $510 price target, emphasizing the improved narrative heading into 2024, bolstered by successful measures against password sharing and favorable financial indicators.
Despite heightened competition, Oppenheimer analyst Jason Helfstein affirmed Netflix’s dominance in the streaming landscape. He cited their proficiency in producing highly engaging content and effective monetization as crucial advantages. Helfstein raised his price target from $470 to $475.
However, concerns were raised regarding the advertising tier. While Netflix reported robust growth in its ads plan membership, up nearly 70% from the previous quarter, challenges in scaling this business and securing higher ad revenues persist.
Macquarie analyst Tim Nollen pointed out the gradual adoption of the ad tier, cautioning about the time it may take for these initiatives to contribute meaningfully. Nollen maintained a Neutral rating and a $410 price target.
Needham analyst Laura Martin, while retaining a Hold rating, expressed apprehension about the slower-than-anticipated growth in ad revenue. She flagged the time-intensive nature of Netflix’s sponsorship model for its ad product and noted its focus on hit content, which might be a challenging strategy in an industry with a 15% hit title rate.
Martin also raised concerns about potential disruptions from the ongoing actors’ strike, a shift back to linear TV viewing amidst the surge in streaming options, and potential churn resulting from the price hikes.
Netflix shares, though up over 30% year-to-date, have experienced a 15% decline over the past three months.
In conclusion, Netflix stock soared on the back of stellar earnings, showcasing the company’s robust performance and strategic moves to secure its position in the competitive streaming industry.
Source: Yahoo Finance