On Tuesday, Netflix (NASDAQ:NFLX) received a reaffirmation of its Outperform rating and a $775.00 price target from Evercore ISI, following a positive update on the streaming giant's advertising business. The company reported reaching 70 million Monthly Active Users (MAUs) for its ad-supported plan, marking the second anniversary of the initiative. This milestone indicates a significant increase from 40 million MAUs in May.
The growth in MAUs suggests a robust expansion of Netflix's subscriber base, which Evercore ISI believes will help the company achieve its goal to double advertising revenue by 2025. The firm emphasizes the importance of subscriber growth over ad revenue but acknowledges the benefits of revenue diversification. The introduction of ad-supported plans at various price points is seen as a strategy to enhance Netflix's value proposition and widen its Total (EPA:TTEF) Addressable Market (TAM).
Netflix's advertising audience has reportedly reached a level of significance for advertisers, particularly in key markets. Although the monthly compounded growth is slowing, the net addition of users is accelerating, with approximately 5 million new users each month since May. This pace represents a 200% year-over-year growth in MAUs. Even with anticipated deceleration, recent trends are expected to meet Netflix's ad revenue doubling expectations for 2025.
The streaming service's ad-supported user base has shown impressive growth since its inception, with monthly additions increasing from 3 million per month between October 2023 and January 2024, to 4 million per month from January to May 2024. This consistent increase in MAUs underscores the company's momentum in attracting and retaining a larger audience through its advertising-supported offerings.
In other recent news, Netflix is under investigation by France's elite financial crime unit, PNF, over allegations of tax fraud. The company's offices in Paris and Amsterdam were raided as part of the ongoing probe. Simultaneously, Netflix announced the departure of two top executives, Dean Garfield and Rachel Whetstone, as the company seeks a new chief global affairs officer.
In financial developments, Guggenheim maintained a positive stance on Netflix, raising its price target and keeping a Buy rating on the shares, following a detailed review of the company's earnings and future prospects. The firm's analysis suggests that Netflix's core streaming business will sustain, while its newer ad-supported and gaming segments will grow.
In the telecom sector, Verizon Communications Inc (NYSE:VZ). reported an increase in wireless subscribers for the third quarter, exceeding analyst expectations. The company's growth is attributed to its flexible 5G plans and bundled streaming service offers, including Netflix. However, the company's total revenue for the quarter slightly missed analyst expectations.
Jefferies, a global investment banking firm, updated its outlook on Netflix, increasing the price target and maintaining a Buy rating. The firm anticipates that Netflix will gain over 10 million subscribers in the fourth quarter, driven by a strong content lineup.
InvestingPro Insights
Netflix's strong performance in its advertising business aligns with several key metrics and insights from InvestingPro. The company's market capitalization stands at an impressive $348.76 billion, reflecting its dominant position in the streaming industry. This is further supported by an InvestingPro Tip highlighting Netflix as a "prominent player in the Entertainment industry."
The company's financial health appears robust, with an InvestingPro Tip noting that "liquid assets exceed short term obligations," suggesting a strong balance sheet. This financial stability is crucial as Netflix continues to invest in content and expand its advertising-supported user base.
Netflix's revenue growth remains strong, with a 14.8% increase in the last twelve months as of Q3 2024. This growth is complemented by a significant improvement in profitability, as evidenced by the 56.58% EBITDA growth over the same period. These figures support Evercore ISI's optimistic outlook on Netflix's ability to double its advertising revenue by 2025.
Investors have taken notice of Netflix's performance, with the stock showing a remarkable 80.09% price total return over the past year. The company is currently trading near its 52-week high, with its price at 99.86% of the 52-week high value. This stock performance aligns with another InvestingPro Tip indicating a "high return over the last year."
For those interested in a deeper analysis, InvestingPro offers 21 additional tips for Netflix, providing a comprehensive view of the company's financial health and market position.
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