Netflix Inc. regained subscriber momentum as the pandemic progressed, although this may not be the biggest highlight of the company’s latest earnings report.
For years, subscriber metrics have been the main driver of Netflix’s inventory
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but lately, the company has also made progress on the financial front. Netflix predicted in its Tuesday letter to shareholders that it expects to tie on a free cash flow basis for the entire year and noted that it could eventually resume share repurchases as it did from 2007 to 2011.
The stock hit an all-time intraday high of $ 577.77 in Wednesday’s first hour of trading, and was on track to hit a record close, beating the previous high of $ 556.55 set on September 1. The shares rose 14% and were on track for their biggest single-day gain after a earnings report since October 18, 2016, when the shares gained 19%.
“We think the serious discussion about whether Netflix could generate cash has been over for some time, but now it’s official,” wrote Loop Capital analyst Rob Sanderson in a note to customers, while reiterating a purchase rating and a price target. $ 650.
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The new financial boost, coupled with a huge hit of subscribers, helped Netflix to upgrade Wells Fargo analyst Steven Cahall, who wrote that he is now a “pickpocket bull” after being previously skeptical of the shares.
“The pandemic supported a stronger acquisition of subscribers, but what really impressed is how the unit’s economy is evolving,” wrote Cahall. “The company has proven that the unit’s economy starts to look attractive with more than 200 mm of subs. This creates a significant gap, as we currently expect only one other competitor nearby ”at Walt Disney Co.
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Cahall raised his target price for Netflix shares from $ 510 from $ 510 to $ 700, while raising his equal weight rating to overweight.
Bernstein analyst Todd Juenger wrote that, although he is not a fan of the “constant” comparisons between Netflix and Disney, he could not help but notice a “marked difference” in the financial outlook for the companies’ respective streaming businesses. Disney, which is the newest in the streaming world, may have four to five years of negative free cash flow for its Disney + service, and the platform has half the Netflix subscriber count that generates half the average revenue per user .
He titled his note to customers “As Disney suspends its dividends, Netflix prepares a repurchase,” while reiterating a higher performance rating on Netflix and raising its target price to $ 671 for $ 591.
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Evercore ISI analyst Lee Horowitz wrote about a potential “history of returning to the powerful shareholder on the horizon” as investors debate what may be in store when it comes to share buybacks.
“While this has always been a potential source of growth, this is the first time in recent history that management has launched the idea of more shareholder returns and a focus on generating FCF,” wrote Horowitz, who has an online rating and $ 460 target price for Netflix shares. “In that sense, a more reasonable multi-win structure for Netflix could become a short-term reality if Netflix retires a significant part of its float in the coming years.”
Netflix’s latest results confirmed to Jeff Wlodarczak, an analyst at Pivotal Research Group, that there is still a substantial opportunity for the streaming giant.
There were some doubts about how much space was left for Netflix in developed markets, but the company added almost 900,000 new net subscribers in the United States and Canada, which was ahead of FactSet’s consensus expectation of 371,000. This dynamic “highlights that the final penetration for Netflix services globally may be higher than anticipated,” wrote Wlodarczak, who raised his target price to $ 750 from $ 660 while maintaining a purchase rating.
Still, skepticism remained elsewhere on Wall Street. “We have been systematically wrong about Netflix, but optimism about the company’s potential to generate free cash flow growth of more than $ 1 billion a year seems to be wrong,” wrote Wedbush analyst Michael Pachter, who ranks underperforming stocks with a $ 340 price target.
Bernie McTernan, an analyst at Rosenblatt Securities, wrote that while Netflix’s expectation that it will no longer need to rely on external financing is “favorable” to the company and its shares, he still has concerns about free cash flow “given the risk of high for the content costs we see from growing competition. ”
He reiterated the stock’s neutral rating, but raised his target price from $ 425 to $ 450.
At least 21 analysts raised their Netflix stock price targets after Tuesday’s report, according to FactSet. Of the 41 analysts followed by the service that cover Netflix shares, 28 have buy ratings, nine have retention ratings and four have sale ratings, with an average target price of $ 614.61.
Netflix shares have gained 69% in the past 12 months with the S&P 500
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increased by 15%.