The Accelerating Pace of Ad Subs
Netflix’ (NFLX) ad-supported tier seems to be hitting its stride. The company recently announced that monthly active users (MAUs) for its ad tier had surged to over 23 million, a significant leap from the 15 million recorded in November. The growth trajectory is indicating a strong potential for Q4 net adds to surpass both the company’s guidance and Street expectations.
Strengthening the Bull Thesis
Oppenheimer analyst Jason Helfstein notes that the accelerating pace of ad subs suggests a robust future for the company. Using the data points for ad-supported users, Helfstein projects an increase of around 0.7 million MAUs/month in Q1 2023, followed by 1.25 million in Q2, 1.6 million in Q3, and 2.6 million in Q4. He also anticipates a jump to 4 million MAU adds/month in December and January, signaling substantial potential for subscription growth in 2024. Helfstein expects ad-supported MAUs to reach 51 million by the end of the year.
Unlocking Revenue Potential
Helfstein emphasizes that faster growth in advertising will lead to a reset of average revenue per membership (ARM) levels. This, in turn, could result in significant incremental margins, with Helfstein projecting $6 billion of ad revenue in 2025. Factoring in a “conservative” 80% margin, this indicates $4.8 billion of incremental EBITDA compared to the total of $7.3 billion in 2023. According to Helfstein, this forecast could pave the way for increased cash content spend and stock repurchases.
Raising Price Targets
As a result of the positive outlook, Helfstein has revised the price target for Netflix stock, elevating it from $475 to $600, with an Outperform (Buy) rating. This suggests a 22% growth potential for shares over the coming year. However, it is important to note that the Oppenheimer take is one of the Street’s most optimistic ones, with the average price target standing at $491.10. The stock currently maintains a Moderate Buy consensus rating based on 25 Buys, 9 Holds, and 1 Sell.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.