Netflix remains dominant streamer and is poised to outperform rivals, Oppenheimer says

By Ciara Linnane

Stock up 1% premarket after analysts hike their price target by 17% to $725

Netflix Inc.'s stock rose 1% early Monday, after Oppenheimer raised its stock price target by 18% to $725, and said it's revising its bull case for the streaming giant based on long-term subscriber and average revenue per member (ARM) trends.

The new price target is almost 20% above the current price.

Analysts led by Jason Helfstein, who have an outperform rating on the stock, said initiatives such as password sharing rules, advertising and optimizing subscriber plan choices will drive subscriber growth and ARM, leading to higher revenue.

"Despite increased competition, Netflix (NFLX) remains the dominant streaming platform and maintains the largest market share of U.S. TV viewership," the analysts wrote in a note to clients. "We believe Netflix's dominance will continue, given its clear advantage in producing high-engagement content and monetizing that content more effectively than peers."

Oppenheimer is expecting 2024 ARM to rise 4% from 2023, boosted by basic & premium price increases in the U.S., UK and France that were announced in October.

The U.S. represents 41% of revenue, while the UK represents 6%, they wrote. Oppenheimer estimates that France accounts for about 5% of revenue.

Net additions could beat Street estimates by 31% over the next three years, the analysts wrote. The consensus estimate is assuming that paid share/ad-tier growth will ease in the first quarter, but Netflix has only captured about 20% of the 100 million discussed opportunity for paid sharing.

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Oppenheimer is betting a 60% capture rate is more likely by 2026, given the company's content advantage - and a pullback by legacy media - which would represent 17 million more subscribers than Wall Street is expecting.

Competition is easing in the streaming world as other platforms maximize profitability, said the note. Warner Bros. Discovery Inc. (WBD), Walt Disney Co. (DIS), Paramount Inc. (PARA) and Comcast Corp. (CMCSA) drove an average of about 2,000 basis points of margin improvement in 2023.

Studios are licensing more content to Netflix as it can monetize it better than the studios' owned services.

The 17 million additional subscribers represent 4% upside to Street revenue estimates and 23% to per-share earnings in 2026, said the note.

They also represent a lifetime value of $5 billion, based on Netflix's last disclosed monthly churn of about 4% in 2011. Netflix's lifetime value metric suggests an average Netflix subscriber stays on board for 25 months. It represents about $10 billion at current churn levels of about 2%, where the lifetime value is 50 months.

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Netflix's current valuation is below that of its tech peers, trading at 22 times estimated EPS for 2026 compared with "expensive tech" at 24 times. The note names Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), Nvidia Corp. (NVDA) and Meta Platforms Inc. (META) as examples of expensive tech names.

The stock has gained 107% in the last 12 months, while the S&P 500 SPX has gained 33%.

-Ciara Linnane

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03-11-24 0947ET

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