There’s a renewed bullish fever in Netflix (NFLX) stock following a better-than-feared third quarter and outlook as well as optimism around a major profit boost from the soon-to-launch ad-supported network.
Netflix stock has surged 51% in the past six months, blowing away the 7% drop for the S&P 500.
That fiery advance coupled with new fundamental drivers won over Wall Street’s biggest Netflix bear on Wednesday: Pivotal Research Analyst Jeff Wlodarczak.
Wlodarczak aggressively hiked his rating on Netflix stock to Buy from Sell and lifted his price target on Netflix to a Wall Street high of $375 per share, which assumes a 23% upside from current levels as of midday trading on Wednesday.
Here are seven reasons why Wlodarczak is now bullish on Netflix:
1. Net new subscribers
First, Wlodarczak pointed to “an increase in our admittedly conservative 2023 net new subscriber forecasts from 5.5 million to 15 million (vs. consensus of 12.5 million) driven primarily by what we believe will be success at converting a material number of effective pirates into paying subscribers or higher ARPU [average revenue per user] and to a lesser extent the short term subscriber benefits of launching an ad supported service.”
2. Average revenue per user (ARPU) forecasts
The analyst added that he expects “a substantial increase in our target price to a Street high $375 driven by the higher ’23 and beyond subscriber/ARPU forecasts + a move to year end 2023 target from year end 2022 previously.”
3. Delayed churn
“While we remain concerned about consumer churn down to $7 ad supported packages (particularly in a recession) that is unlikely to develop into a potential issue until second half of 2023 at the earliest.”
4. Competitors raising prices
“Competitors are taking price (including Apple yesterday) which we view as fundamentally positive.”
5. Relative strength amid ad spending slowdown
“Netflix stock appears to be a relatively attractive place for investors to be amidst major slowdowns in digital advertising (Netflix should be able to lever pirate conversion and ad supported to grow in virtually any environment).”
6. Unique offerings
“While competition is heating up Netflix still provides the most unique and powerful streaming experience globally with a reasonable path to accelerate subscriber growth over at least the next year.”
7. Potential sale to Microsoft
Wlodarczak also thinks Netflix CEO Reed Hastings will sell the company to new partner Microsoft.
“We continue to believe that CEO Reed Hastings will look to sell Netflix (to most likely Microsoft) as early as 2024 (with regulatory approval in 2025 under a potential new administration),” the analyst stated.