Analysts maintain rating on Netflix as Q3 earnings near; anticipate plan price hikes
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Wall Street analysts mostly stayed bullish on streaming giant Netflix (NASDAQ:NFLX) and weighed in with their commentary ahead of its third quarter earnings.
Oppenheimer said the company remains “the dominant streaming platform” and maintains the largest market share of U.S. TV viewership. The ratings firm believes NFLX’s initiatives, such as password sharing rules, advertising, and optimizing subscriber plan choices, will drive subscriber growth and average revenue per membership, leading to higher revenue.
Oppenheimer noted that the company announced an increase to the Premium tier in the U.S., UK, and France last October and now anticipates a hike in Premium pricing for other regions, and more importantly, an 8%–15% increase to the Standard plan.
To reflect pricing increase, they forecast ad revenue of $900M and 33M ad-tier subs for 2025 and $1.8B revenue and 41M ad-tier subs in 2026. For Q3, the expect EPS of $5.10 and revenue of $9.8B, and for the full-year, EPS of $19.32 and revenue of $38.9B.
“We believe NFLX’s dominance will continue, given its clear advantage in producing high-engagement content and monetizing that content more effectively than peers,” Oppenheimer said in its October 9 research note.
Morgan Stanley said it is bullish on NFLX shares as it sees a long runway for revenue growth, above consensus expectations for operating leverage and EPS, and a deepening competitive moat, among things.
“The key to Netflix’s success stems from generating more value from each dollar invested in content. Content amortization is its largest expense item (over 50% of its opex base in ’24), and leveraging this investment is key to long-term earnings growth. Throughout the roller coaster that has been 2019 to 2024, its revenues have grown at a +14% CAGR vs. cash content spend of just +3%,” Morgan Stanley analysts said in their October 9 note.
Citi Research, on the other hand, stayed “neutral” on NFLX and said they see a possibility for the company to raise its prices in the U.S. by 12%, given its low cost per viewed hour.
However, they also pointed out that NFLX may require revenue grow of ~15% if it has to generate $25 of EPS in 2025. They argued that even if Netflix adds 20M subs and raises U.S. prices by 12%, non-U.S. ARPUs would need to rise 6% to achieve ~15% revenue growth in 2025, which they view as unlikely.
“We expect Netflix’s stock to trade higher on a U.S. price hike announcement, but we would expect shares to eventually trade lower as investor’s hopes for $25 in 2025 EPS are dashed,” Citi said.
Oppenheimer has given NFLX an “outperform” rating and a price target of $775, hiked from $725, implying an upside of 6.5%. Morgan Stanley rated it “overweight” and raised PT to $820, from $780, a 13% upside.
Citi had its PT unchanged at $675, implying a 7% downside. Stock is up 49% so far this year while the S&P 500 rose 21%. The company is scheduled to report Q3 earnings on October 17.