- Even under a turbulent macro scenario, Netflix has performed well, considering its focus on generating free cash flow.
- The implementation of a lower-cost service through an ad-supported tier could bring an important increase in subscribers over the next year.
Figure 1: Why Should You Buy Netflix Stock According To Wall Street?
It Is Unlikely That Subscribers Have A Prolonged Period Of Losses.
Netflix reported that it had lost "only" 970,000 subscribers, contrary to market estimates of 2,000,000. According to Stifel Nicolaus analyst Scott Devitt, the company's new subscriber base is beginning to stabilize.
Devitt sees a long period of subscriber loss becoming less and less likely. He therefore has a bullish recommendation for Netflix. He has assigned their shares a price target of $250, implying an increase of about 10%.
Jason Bazinet, a Citi analyst, believes Netflix's Q2 outlook was better than Wall Street's expectations. He has strengthened his bullish view on the stock and forecasts a price target of $275.
Accurately Responding to Macro Headwinds
Netflix has managed macro headwinds well, according to Michael Pachter of Wedbush. The company has reduced costs in order to accommodate slower revenue growth, and has become more focused on generating free cash flow.
Pachter believes that Netflix's positioning is wise. The streaming giant will become an increasingly profitable entity as long as it maintains stable, reasonable revenue growth.
The analyst forecasts Netflix's free cash flow to be $1 billion in the whole year. Year-over-year growth thereafter might act as a positive catalyst for Netflix stocks. As such, Pachter currently has a buy recommendation and a NFLX price target of $280 per share.
Pachter commented on the internet a few years ago that he was chastised when he saw Netflix overvalued at $690. Today, he sees NFLX as being undervalued, with shares dwindling about 70% from their all-time highs.
A Tier with Ad-supported Membership may increase the number of members in the future.
Netflix's intention to offer a lower-cost service to customers via an ad-supported tier, Cowen analyst John Blackedge sees a potential of four million new members by 2023 generating about $17 in revenue per person per month. Blackedge remains positive about the company and gives the stock a buy rating.
Thomas Champion, a Piper Sandler analyst, believes Netflix will generate roughly $1.4 billion in additional revenue per quarter if it implements its ad-supported tier. Champion still maintains a neutral rating on NFLX.
(Disclaimers: this is not investment advice. The author may be long one or more of the stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not affect editorial content.)