Netflix, Inc. NFLX is trading at all-time highs and according to Nomura Managing Director Anthony DiClemente, this is not the peak, as it may well be trading near $750 levels in the next two to three years.
DiClemente was on CNBC Tuesday to discuss his bullish case scenario for Netflix.
Higher Level Of Profitability
"What they are doing is they have got more subscribers globally than any media company," DiClemente said. "So, they can effectively afford to pay more for a piece of content and basically amortizing it over more subscribers. So, when you look out in the long-term model, you can assume higher levels of profitability for the enterprise."
He continued, "So, I think at the very least they modeled this that they can do $25 of earnings in 2020. I think ultimately that's going to $50. So, at least in the kind of median two to three year term, I think, it is $25 with a 30 times multiple you get to 750 on the stock, and that's, I would say, a bull case."
Efficiencies Of Scale
DiClemente was asked if Netflix has any pricing pressure to be able to raise prices of its services because, compared to HBO, its margins are very low. He replied, "Right, and I think that speaks to the runway and the trajectory of the margins from here, right?"
He went on, "I think as Netflix grows its scale, there are efficiencies of that scale that will drop to the bottom line. And if you look at HBO NOW service, it's priced at $15 a month, and I think it's very possible that that's giving Netflix a pricing umbrella, because the usage is much higher on Netflix," DiClemente concluded.
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