Netflix rises as Wells Fargo upgrades, citing improving churn, stable subscriber base
Wachiwit

Netflix (NASDAQ:NFLX) shares rose more than 3% Friday as Wells Fargo upgraded the media and entertainment giant, citing improving churn due to a better slate of content, as well as the company's new advertising-supported subscription and paid account sharing helping improve the company's subscriber base.
Analyst Steve Cahall raised his rating on Netflix (NFLX) to overweight from equal-weight and boosted his price target to $400 from $300, noting that even though competition has increased, the boost from the early days of the COVID-19 pandemic has subsided and content growth slowed, there is still "scope" for the company's key performance indicators to exceed expectations in 2023. And with the stock down roughly 48% year-to-date, it looks like a good time for investors to jump in. 
"So, we feel better on subs, while ads drive us ahead on revenues," Cahall wrote in the report.
Delving deeper, Cahall noted that rising global connectivity is likely to help Netflix (NFLX) add roughly 8M net new subscribers per year before it increases its market share and with subscriber churn likely to improve next year because of content, the new ad subscription and paid sharing, subscribers could rise as much as 10M.
Netflix's (NFLX) new advertising tier, which launched in November, is already available in 11 countries, which likely account for roughly 75% of Netflix's (NFLX) subscriber base, according to Cahall. The new tier is likely to boost revenue by $300M in 2023, $1.6B in 2024 and $3.4B in 2025, while the boost to average revenue per user may come a bit later, perhaps in the second-half of 2024. 
The analyst added that 2023 revenue is estimated to grow 7%, rebounding off what was seen as a difficult 2022 for the company. 
"Our conclusion is that 2022 reflected a dip in content share, a lack of original hits for a time and the digestion of the COVID sub [comparison], none of which should be read forward," Cahall explained.
Netflix (NFLX) co-CEO Reed Hastings recently suggested at a conference that he regretted not getting into the advertising business sooner.
Analysts are mostly cautious on Netflix (NFLX). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, also rates NFLX a HOLD.