A bullish analyst on Wednesday reaffirmed his positive stance on Netflix, Inc. NFLX ahead of its fourth-quarter results due Tuesday.
The Netflix Analyst: KeyBanc Capital Markets analyst Justin Patterson maintained an Overweight rating on the stock and upped the price target from $525 to $545, suggesting roughly 13% upside potential.
The Netflix Thesis: For the fourth quarter, Patterson models revenue of $8.74 billion, an 11% year-over-year growth, and earnings per share of $2.22, a cent ahead of the consensus estimate. The analyst also called for a net paid subscriber addition of 9.6 million compared to the 8.7 million consensus estimate.
Looking ahead, Netflix will likely guide to at least $9.1 billion in first-quarter revenue and net adds above the year-ago level, Patterson said. “We view net adds as the key driver of the quarter, and expect Netflix will stick to qualitative commentary framing net adds vs. the prior year,” he said.
While seeing the potential for first-quarter net adds of over 4 million, contingent on paid sharing remaining a tailwind, the analyst said he is conservatively estimating a year-over-year increase of 2.6 million.
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As such, KeyBanc raised its fourth-quarter revenue and earnings per share estimate by 1% and 3%, respectively, premised on stronger ad-supported MAU trends. Looking ahead, the firm said it sees more balanced growth between ad-supported and ad-free net adds and the ad-supported reaching about 7% of revenue by 2025.
“We believe Netflix’s recent ad-supported MAU milestone reinforces that: 1) member growth remains healthy and 2) revenue growth should hold in the low-teens over the medium term as Netflix benefits from pricing and ads monetization,” Patterson said.
The firm also hiked its 2023, 2024, and 2025 earnings per share estimates for Netflix by 1% each, with its 2024 and 2025 estimates above the consensus.
The Netflix Price Action: In premarket trading on Wednesday, Netflix shares fell 0.18% to $480.35, according to Benzinga Pro data.
Read Next: Netflix’s Surging Ad Subscribers Ignite Optimism, Analyst Bumps Up Price Target By 26%
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