Netflix (NFLX) stock rose about 4% in midday trading on Monday after MoffettNathanson analyst Robert Fishman upgraded shares to Buy from Neutral and boosted his full-year price target to $1,100 from $850 prior.
“Netflix has won the streaming wars. Case closed,” Fishman wrote in a note to clients. “But where does the company go from here? How much more runway for growth is ahead? Despite all of Netflix’s recent success in reinvigorating growth, we believe its engagement will allow the company to better monetize and unlock greater profits in the years ahead.”
Netflix stock has struggled in recent sessions as a broader market sell-off continues to slam high-flying tech names. Shares have fallen over 10% from the 52-week highs they reached just one month ago, when the stock was trading well above $1,000 a share.
But Fishman sees brighter days ahead, crediting the “Netflix flywheel” when it comes to the company’s ability to expand margins.
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In his note, the analyst said Netflix can afford to spend more on content due to its vast number of subscribers, which currently sits at nearly 302 million globally. As a reminder, the company will no longer reveal subscriber data beginning in its 2025 reporting cycle.
“Because it has more content, it drives better engagement, leading to more subscribers and possibly better pricing power in a virtuous cycle,” Fishman said. “This is the enduring power of Netflix’s first-mover advantage in streaming.”
And with the company beginning to scale its two-year-old ad tier, a new runway of growth has been unlocked, according to the analyst.
Earlier this year, the company hiked subscription costs across its various streaming tiers in the US, including the ad plan, which still remains one of the cheapest tiers on the market.
Management said it decided to raise prices, as its content “has never been better,” with more movies and TV shows expected throughout 2025. Sports and live events have also become staples within the Netflix ecosystem.
In November, the Jake Paul and Mike Tyson match attracted over 108 million global viewers, becoming the most-streamed sporting event of all time. For context, the 2024 Super Bowl, which was the most-watched American TV broadcast ever, pulled in 124 million US viewers.
Similarly, the NFL games averaged around 30 million viewers. According to Netflix, it was its most-watched Christmas Day ever in the US. The company will continue to double down on sports amid the recent debut of WWE Raw. Rumors have also swirled the company could bid on UFC rights next.
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“Despite all of Netflix’s success to date, we think a still underappreciated aspect of Netflix’s scale is its ability to better monetize its engagement in the years ahead,” Fishman said.
Netflix logo is pictured at a premiere for the 4th and final season of the television series “The Umbrella Academy” in Los Angeles, Calif., Aug. 5, 2024. REUTERS/Mario Anzuoni ·REUTERS / Reuters
In 2024, Netflix posted a record-breaking year, which included revenue growth of 16% as operating margins surged 600 basis points to nearly 27% — that’s about 300 basis points higher than its guidance at the outset of the year.
Plus, the company added 41 million global subscribers last year, above the 36.6 million it added during the COVID-induced surge of 2020.
Password-sharing crackdowns helped aid those subscriber figures, and although the analyst expects the benefits of those crackdowns to slow in the near term, the company should continue to see subscriber upside from its content slate, with its ad tier serving as a longer-term catalyst for capturing new users.
The ad tier should also alleviate some pressure if the macroeconomic environment further deteriorates. Looking ahead, the company expects its ad business to double in size this year, previously noting “a top priority in 2025 is to improve our offering for advertisers.”
And according to a MoffettNathanson analysis of time viewed from Nielsen compared to 2024 US revenues by platform, Netflix still has the opportunity to raise prices. The company’s $0.40 of revenue per hour viewed pales in comparison to the likes of Paramount+ (PARA) and Warner Bros. Discovery (WBD), suggesting the company is under-earning relative to its peers.
“Yes, the current macroeconomic environment is uncertain and largely no one is impervious to a weakening consumer, but this analysis gives credence to the idea that Netflix still has ample runway ahead to take additional price increases in the US in the years ahead,” Fishman said.
Overall, the analyst expects Netflix’s operating margin to reach 29.5% in 2025 before eventually hitting broadcast-like margins of 40% by the year 2030.
Risks to those estimates include a failure to successfully build out and scale advertising revenues, along with an inability to further raise prices. Additionally, any material slowdown in subscriber growth coupled with a rapid increase in content spending would also pose threats to the downside.
Wall Street analysts who cover Netflix have a median price target of just around $1,090 a share with 44 Buy ratings, 13 Holds, and just two Sells, according to the latest Bloomberg consensus estimates.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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