Netflix gains as Evercore boosts to Outperform on ad upside
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Netflix (NASDAQ:NFLX) is 2.6% higher premarket as Evercore ISI makes the move to upgrade to Outperform off some fresh surveys and analysis of the company's advertising opportunity.
The upcoming ad-based service - ostensibly set for the beginning of 2023, but increasingly looking like it will be out by Nov. 1 - along with the chance to recapture some fees through a new approach to managing password sharing are "Growth Curve Initiatives ... catalysts that can drive a material reacceleration in revenue growth," analyst Mark Mahaney said.
"We donât believe these opportunities are factored into current Street estimates or into NFLXâs current valuation. Hence the upgrade," Mahaney says.
Netflix longs have been "severely tested," but "we believe the global Streaming market remains attractive, Netflix is the proven market leader, its management team is highly experienced and has a strong (though not spotless) vision and execution record, the business model has proven its operating margin leverage and is in the process of generating substantial (free cash flow), there is a clear catalyst on the horizon, and valuation is intrinsically attractive."
Some fresh survey work points to two factors, Mahaney said: Netflix is still "the" global streaming leader, and the company has been seeing heavier price sensitivity among current, churned and potential subs - pointing to the opportunity for a lower price ad-supported offering.
That can be accretive to margins as well as average revenue per sub: Some 20%-plus of churned users are likely to come back to the service with a cheaper option, he said. There's potential for some 10M in incremental net adds and $1B-$2B in incremental revenue by 2024, which is enough to change expected 2024 revenue growth to the mid-teens from about 10%.
The firm raised its price target to $300 from $245, implying 34% upside.
Reports yesterday suggested that Netflix is telling ad buyers it wants to have 40M ad-supported viewers by the third quarter of next year.