Despite near-term volatility related to the coronavirus, Netflix Inc NFLX is still winning buyers.
The Netflix Rating
The Netflix Thesis
Their bullish call is based on three factors.
First is an underappreciated addressable market with potential to sustain double-digit subscription growth. Jefferies expects subscriber numbers to drive 18% compound annual revenue growth through 2023 — and that’s with just 28% international penetration.
“Importantly, our revenue growth assumes a 15% subscriber CAGR and just a 3% ARPU [average revenue per user] CAGR, mitigating the bear thesis that sizable price hikes are necessary,” the analysts wrote in a note.
Second, margins continue to improve, which bodes well for free cash flow.
“We believe NFLX will soon reach sustained FCF profitability, in which it will be able to self-fund content and become less reliant on tapping the capital markets,” they wrote, forecasting more than $10 billion in FCF by 2026.
Third, Netflix has demonstrated its capacity to thrive in an evolving market and retain first-mover advantage with a number of features. According to Jefferies, the threat of competition to subscriber growth and pricing power is exaggerated.
NFLX Price Action
At the time of publication, Netflix shares traded around $438.34.
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