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On Wednesday, BMO Capital Markets showed a strong conviction in Netflix (NASDAQ:NFLX)'s growth prospects, with analyst Brian J. Pitz increasing the streaming giant's price target to $1,000 from the previous $825. The firm maintains an Outperform rating on Netflix shares, signaling confidence in the company's future performance.
According to InvestingPro data, Netflix has demonstrated this confidence with a remarkable 68.32% return over the past year, while maintaining a market capitalization of $354.11 billion.
The optimism from BMO Capital stems from the robust growth in Netflix's ad-supported video on demand (AVOD) user base, which has reached 70 million monthly active users (MAUs), a significant jump from 40 million in May. Pitz anticipates this number will climb to 90 million by the end of 2025.
The analyst highlights that the platform's AVOD monetization is showing promising signs of traction with brand advertisers, and the potential inclusion of small and medium-sized businesses (SMBs) is on the horizon, thanks to enhanced programmatic capabilities. This growth strategy appears to be paying off, with InvestingPro reporting a 14.8% revenue growth and healthy 45.25% gross margin in the last twelve months.
Pitz projects an increase in ad frequency on Netflix, estimating an average of 4.5 ads per hour, which is expected to rise to 5 ads per hour by 2026. This estimate, according to Pitz, may even be on the conservative side. The recent addition of World Wrestling Entertainment (NYSE:TKO) (WWE) content to Netflix, which started on January 6, is also projected to significantly boost viewer engagement compared to competitor Peacock, potentially tripling the engagement levels.
Furthermore, Pitz suggests that Netflix has additional levers to pull regarding pricing strategies for its Standard and Premium tiers, which could be considered in the future. The combination of growing AVOD MAUs, enhanced advertising capabilities, and strategic content additions like WWE positions Netflix favorably in the eyes of BMO Capital Markets, leading to the raised price target and reaffirmed Outperform rating.
With Netflix's next earnings report due on January 21, 2025, investors can access comprehensive analysis and 17 additional key insights through InvestingPro's detailed research reports.
In other recent news, Netflix has experienced several shifts in analyst projections following impressive Q4 results. Piper Sandler increased the company's price target to $950, maintaining an Overweight rating. The revision was based on Netflix's strong Q4 performance, driven by a robust content lineup and the inclusion of NFL games, leading to a 14.8% revenue growth and a 45.25% gross margin over the last year.
Macquarie analysts also raised the price target on Netflix shares, predicting an addition of over 33 million subscribers by 2024. They highlighted advertising revenue and live events as potential growth drivers. Guggenheim increased its price target on Netflix, expecting approximately 14% core revenue growth, while Goldman Sachs raised Netflix's price target, focusing on the company's pricing strategy and advertising-supported initiatives.
However, Benchmark maintained its Sell rating on Netflix's shares, citing overvaluation despite the company's superior execution and global scaling advantages. UBS reaffirmed a Buy rating on Netflix, emphasizing the company's successful venture into sports broadcasting and potential growth in advertising.
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