Netflix stock reaches record high as investors applaud earnings, but valuation worries persist.
Netflix stock hit a record high above $772 on Monday, following a strong performance in its third-quarter results. The streaming giant exceeded expectations across major financial metrics, with sales projections for the current quarter surpassing Wall Street estimates. Bank of America analyst Jessica Reif Ehrlich highlighted Netflix’s growth drivers, including its thriving advertising tier and ventures into gaming, sports, and live events.
Ehrlich reiterated a Buy rating on Netflix shares and raised the price target to $800. However, the stock’s rapid 60% surge this year has raised concerns about its valuation. Investors have applauded Netflix’s revenue diversification, particularly with its advertising tier accounting for over half of sign-ups in applicable markets. The company’s crackdown on password sharing is nearing completion, with future price increases expected to offset any subscriber slowdown.
Deutsche Bank analyst Bryan Kraft anticipates that revenue growth post-2025 will stem from a more normalized pricing strategy after navigating the password-sharing crackdown. Analysts foresee a potential price hike as a positive catalyst for Netflix’s stock, given its pricing power compared to competitors. Netflix co-CEO Greg Peters mentioned plans to evolve pricing tiers while emphasizing the appeal of the $6.99 ad-supported plan in the US.
Despite Netflix’s strong position in the streaming landscape, concerns linger about sustaining subscriber momentum and revenue growth. MoffettNathanson analyst Robert Fishman maintained a Neutral rating on shares, projecting a potential decline to $670 by year-end. Fishman noted the stock’s lofty valuation and anticipated revenue deceleration into 2025, as highlighted in Netflix’s guidance.
Netflix has gradually increased prices for its plans, with the Standard plan now starting at $15.49 for an ad-free experience. The company phased out its lowest-priced ad-free plan, making the Standard plan the cheapest ad-free offering. Netflix’s ad-supported plan remains competitively priced at $6.99 per month, with analysts suggesting a long-overdue price increase to sustain revenue growth.
Bloomberg Intelligence analyst Geetha Ranganathan emphasized the importance of consistent revenue to support Netflix’s valuation, advocating for periodic price adjustments. While acknowledging Netflix’s dominance in the streaming arena, Ranganathan highlighted the company’s ongoing success in the streaming wars.
In conclusion, Netflix’s record stock performance reflects its robust financial results and strategic initiatives. As the streaming landscape evolves, Netflix faces challenges in balancing subscriber growth, pricing strategies, and maintaining its competitive edge in the market.