After a tough year for shares, Netflix (NFLX) is getting a fresh dose of Wall Street optimism.
On Friday, analysts at Wells Fargo upgraded the stock while the team at Cowen upped their price target, sending Netflix shares higher by more than 4.5% early in the trading session. Analysts at both firms cited Netflix’s recently launched ad-supported tier as a key catalyst for growth.
“After a period of turmoil around slowing subscribers and revenue growth, NFLX is using every arrow in the quiver,” Wells Fargo analyst Steve Cahall wrote in a new note to clients.
Cahall upgraded shares from Equal Weight to Overweight and upped his price target to $400 from $300 a share.
Cahall added the company will have “way more ways to win” next year after a rough 2022 that included increased competition and slowing content growth. “Content is clearly improving,” Cahall noted, following the successful series debuts of “Wednesday,” “Dahmer – Monster: The Jeffrey Dahmer Story,” and “The Watcher.”
“Glass Onion: Knives Out” will make its much-anticipated debut on the platform on Dec. 23 following an especially encouraging limited theatrical release. The analyst said he sees churn improving in 2023 amid that content push, in addition to the platform’s ad-supported tier and password sharing crackdown.
Shares of the media giant, down more than 45% since the start of the year, have climbed more than 65% over the past six months.
“Overall, we forecast NFLX’s ad-supported tier will drive around +23mm incremental subs by 2025E to 279mm global subs, vs our prior expectation of 256mm,” Cahall wrote. “We don’t see how AVOD isn’t anything other than incremental to subscribers.”
The analyst estimated revenue growth of 7% in 2023, adding the streaming giant’s engagement “suggests it has plenty of pricing power ahead” to hike subscription fees.
“We see NFLX as one of the co-leaders in global streaming and over time we expect market share to benefit the few scaled players,” Cahall wrote.
Cowen analyst John Blackledge agreed Netflix will continue to be a leader in streaming, naming the stock the firm’s top large cap pick for 2023. Blackledge reiterated his Outperform rating and hiked his price target to $405 from $340.
Blackledge cited three main drivers for shares — free cash flow growth, re-accelerated revenue, and new monetization levers as the company cracks down on account sharing and further leverages its cheaper, ad-supported tier.
“We view NFLX as a pioneer in online streaming, with further expected growth in subs in the U.S. and expectations for long-term sub growth internationally in existing and new markets,” Blackledge wrote in a new note to clients.
Blackledge added potential upside from the company’s new ad tier is “likely still underappreciated” on Wall Street, stressing: “We view NFLX as the best ‘recession play,’ particularly as the ad tier is attractive for value conscious consumers.”