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Why Netflix’s Stock Bull Thesis Is Gaining Strength as Per Oppenheimer Why Netflix’s Stock Bull Thesis Is Gaining Strength as Per Oppenheimer

The Accelerating Pace of Ad Subs

Netflix’ (NFLX) ad-supported tier recently announced that monthly active users (MAUs) had surged past 23 million, marking a significant increase from the 15 million recorded in November. In May, the ad-supported tier had only 5 million subscribers. According to Oppenheimer analyst Jason Helfstein, this accelerating growth of ad subs suggests that Q4 net additions should surpass both the company’s guidance and Street expectations. Helfstein projects 10 million consolidated net adds in Q4, compared to the consensus estimate of 8.7 million.

Optimistic Outlook for Subscriber Growth

Helfstein’s analysis of the announced data points for ad-supported users reveals that approximately 0.7 million MAUs/month were added in 1Q23, followed by 1.25 million in Q2, 1.6 million in Q3, and 2.6 million in Q4. Furthermore, he anticipates an increase to 4 million MAU adds per month in December and January. This impressive growth trajectory has led Helfstein to believe that there is ample room for subscriber growth in 2024. He foresees ad-supported MAUs reaching 51 million by the end of the year.

The Strengthening Bull Thesis

Helfstein’s assessment highlights the strengthening bull thesis for Netflix. The accelerating subscriber growth bodes well for the company, and Helfstein reasons that the faster Netflix achieves scale in advertising, the quicker average revenue per membership (ARM) levels will rise. He underscores the positive impact of advertising, citing its significant incremental margins. Based on his analysis, Helfstein now expects $6 billion in ad revenue in 2025, with a conservative 80% margin, translating to $4.8 billion of incremental EBITDA compared to the total of $7.3 million in 2023.

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Implications for Investors

Helfstein’s bullish outlook on ad revenue leads him to anticipate a higher cash content spend in the future, with the potential for increased stock repurchases or bolstering of Netflix’s content offerings. Consequently, he has set a new price target of $600, signaling a 22% growth potential for Netflix shares over the next year. His rating on the stock remains Outperform (i.e., Buy).

Market Consensus and Price Target

It is important to note that although Oppenheimer’s analysis is optimistic, it represents one of the Street’s most favorable outlooks. The average price target currently stands at $491.10, almost identical to the current stock price. The consensus rating for Netflix stock is a Moderate Buy, based on 25 Buy ratings, 9 Holds, and 1 Sell.

Netflix Stock Image

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended for informational purposes only. It is crucial to conduct thorough analysis before making any investment decisions.