BMO Capital Markets has maintained its Outperform rating on Netflix (NASDAQ:NFLX) shares and increased its price target to $825 from the previous $770.
The adjustment follows a review of the company's future revenue growth and advertising revenue potential.
The firm's analyst cited several reasons for the raised target, including projections for higher-than-anticipated revenue growth in 2025, which is expected to be between 11-13%.
The forecast surpasses BMO Capital's own estimate of 11.9%. Additionally, the analyst expressed greater confidence in Netflix achieving a 10% advertising revenue mix by 2026 and beyond, bolstered by the successful integration of third-party demand partners.
The analyst also highlighted Netflix's planned $18 billion content expenditure in 2025, which is anticipated to attract new subscribers and reduce customer turnover. The strategic spending is seen as a means to strengthen the streaming giant's market position and enhance user engagement.
Netflix's leadership was another factor contributing to the positive outlook. The analyst referred to the company's co-CEOs as "best-in-class," indicating strong management as a key component of Netflix's continued success.
In other recent news, Netflix has been a focal point for analysts following the release of its third-quarter results. The streaming giant's revenue and profit after tax and minority interests (PATMI) for the first nine months of 2024 reached 74% and 84% of Phillip Securities' full-year 2024 estimates, respectively. Despite an upgrade to the discounted cash flow (DCF) target price, Phillip Securities has shifted to a Neutral rating due to the recent strength in Netflix's share price.
The company also surpassed Wall Street's third-quarter subscriber growth estimates by a significant margin, adding 5.1 million new streaming subscribers during this period. Evercore ISI increased its price target for Netflix to $775, maintaining an Outperform rating due to the company's strong Q4 outlook and recent selective price increases.
UBS, Piper Sandler, and KeyBanc also raised their price targets for Netflix, citing strong subscriber growth and improved margins. Netflix's management anticipates a sequential rise in net subscriber additions for Q4, with a projected 13 million in Q4 of 2023. The company's full-year revenue growth expectations have been revised upward to 15%, and the operating income margin is projected to reach 27% by 2024.
Netflix's robust growth strategy includes diversifying revenue streams through advertising, gaming, and live content, which analysts believe will contribute to significant operating income growth in the coming years.
InvestingPro Insights
Recent data from InvestingPro adds weight to BMO Capital Markets' bullish outlook on Netflix. The streaming giant's market capitalization stands at an impressive $295.12 billion, reflecting its dominant position in the entertainment industry. Netflix's revenue growth remains robust, with a 13.0% increase over the last twelve months and a notable 16.76% quarterly growth in Q2 2024. This aligns with BMO's projections for continued strong revenue growth in the coming years.
InvestingPro Tips highlight Netflix's financial strength and market performance. The company is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.59, suggesting potential undervaluation despite its high earnings multiple. This could support BMO's increased price target. Additionally, Netflix's high return over the last year, with a remarkable 98.63% price total return, underscores its strong market performance and investor confidence.
For readers interested in a deeper dive into Netflix's financials and future prospects, InvestingPro offers 14 additional tips, providing a comprehensive analysis of the company's position in the streaming market.
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