Netflix stock rallied over 11% on Friday after the company beat Wall Street expectations for its third quarter of 2024.
The company reported a 41% year-over-year increase in profit and 15% increase in revenue during the quarter as it added 5.07 million subscribers and continued to make progress in scaling its ad tier, with the offering’s member base growing 35% quarter over quarter.
Shares of the streamer, which are up more than 120% in the past year, closed at $763.89 on Friday – just shy of its 52-week high
Bank of America analyst Jessica Reif Ehrlich reiterated her buy rating on Netflix and upped her price target to $800 per share, calling it “one of the best-positioned companies within media,” citing its accelerating ads business as well as its gaming, live and sports businesses as drivers of future growth.
She added that the company’s “existing scale advantage is bearing fruit,” with healthy revenue growth and cost discipline drive operating leverage, with an increased 2024 margin outlook of roughly 27%.
William Blair analyst Ralph Shackart maintained an outperform rating with no price target, noting that the firm remains optimistic that the ad tier and paid sharing will be tailwinds for top line growth through the medium term.
“Overall, Netflix continues to be well positioned to remain a secular streaming winner, in our view, and we believe the pricing increases will eventually flow through the model to satisfy investors,” he said.
Wolfe Research analyst Peter Supino maintained a peer perform rating with no price target, noting that the firm is “compelled by the opportunity for ~3/4 of global pay-TV dollars to shift to streaming, of which Netflix should capture a significant share.” But he sees limited upside and risk to medium-term revenue estimates as the benefit of paid sharing wanes.
“At today’s valuation, Netflix needs to show a virtuous cycle of content, engagement, subs & pricing with double-digit growth sustained for many years in a competitive industry structure for shares to outperform,” he argued. “Netflix’s premium valuation multiple does not provide a margin of safety upon which to absorb the rising risk of growth expectations reductions.”
However, he believes that Netflix’s confidence in its guidance that the majority of its growth next year will be driven by paid memberships “helps refute the bear case that revenue growth will materially decelerate as the business normalizes.”
“When combined with an outlook for flattish reported ARPU year-over year in 4Q implying double-digit million net adds next quarter to meet revenue guidance, and robust and improving content slate post-strikes, the bear case, at the moment, lacks tangible catalysts,” Supino added.
Despite bullishness from some analysts on Wall Street, others took a more cautious view.
Deutsche Bank analysts Bryan Kraft and Benjamin Soff, who maintained a hold rating and $650 price target, noted that revenue growth in 2025 and beyond would “continue to be a function of slower subscriber growth.” They anticipate a return to a “more normal pricing cadence as the company has largely made its way through the paid sharing initiative.”
MoffettNathanson analyst Robert Fishman touted an “indisputable blockbuster run for the company that famously sent Blockbuster to its grave” despite a strike-impacted content slate.
“Yet, with much of the subscriber growth seemingly representing improved monetization of an existing user base, we question whether the momentum can continue into next year,” he warned. “Ultimately, we all know that Netflix is the winner of the streaming wars. It has a bright future as king of premium, long-form media. Yet, the market has priced Netflix’s stock as if it is poised to be even more than that, and that leaves us on the sidelines scratching our heads.”
The firm maintained a neutral rating on Netflix but raised its price target to $670 per share.
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