Netflix (NFLX) has carved a unique path in the streaming universe, defying naysayers and evolving into a must-have stock as we step into September 2024. While not officially part of the acclaimed “Magnificent Seven” tech giants, Netflix shines as a leader in its own right. Sporting a remarkable 39.6% surge in its stock price this year, NFLX is outshining nearly all members of the Mag 7 roster, with the exceptions of Nvidia (NVDA) and Meta Platforms (META), following a tumultuous summer for tech equities.
Analysts are seeing even more potential ahead. Pivotal Research recently reaffirmed its Buy rating on Netflix and bumped up its price target from $800 to $900, attributing this bullish stance to Netflix’s knack for leveraging its scale and growing its subscriber base. Similarly, Evercore raised its price target to $750, highlighting Netflix’s robust market position and untapped growth prospects.
What exactly is fueling the fervor around Netflix? Let’s dissect the factors propelling its success, its standing in the market, and why experts believe there’s ample room for growth.
Netflix’s Current Market Position
Netflix’s ascent to dominance in the streaming realm is substantiated by some truly staggering figures. In its Q2 2024 earnings report, Netflix surpassed Wall Street’s projections across the board. The company reported revenue of $9.56 billion for the second quarter, marking a 17% year-over-year increase. Net income soared by 44% to $2.15 billion, while diluted earnings per share (EPS) of $4.88 outclassed the expected $4.74.
However, the real standout was Netflix’s surge in subscribers. Adding 8.1 million new subscribers in the quarter, Netflix now boasts a global total of 278 million, signaling a robust 16.5% uptick in subscriber numbers. This growth spurt underscores Netflix’s successful strategy of cracking down on password sharing and introducing a more budget-friendly ad-supported tier. Hit original series like “Bridgerton S3” and “Under Paris” have captivated audiences worldwide, further catalyzing this impressive expansion.
Reflecting this financial triumph, Netflix’s stock has soared by nearly 40% since the year’s commencement. In the past month alone, the stock surged by 10.7%, while the broader S&P 500 communications sector experienced a slight dip and the S&P 500 Index ($SPX) ascended by 3.3%. This outperformance underscores investor confidence in Netflix’s strategies and growth potential.
When it comes to valuation, Netflix stands head and shoulders above the rest in the streaming industry. With a forward Price-to-Earnings (P/E) ratio of 35.32, well exceeding the sector median of 13.49, and a Price-to-Sales (P/S) ratio of 7.49 far surpassing the sector median of 1.28, investors are evidently factoring in robust future earnings growth for NFLX.
The Forces Behind Netflix’s Ongoing Triumph
Netflix isn’t just raising the curtains on new shows – it’s venturing into uncharted territories, aiming to be a hub for live sports and events.
An attention-grabbing partnership lies with WWE, where Netflix will exclusively air “Monday Night Raw” starting in January 2025, in a groundbreaking $5 billion, 10-year deal that marks a departure from traditional TV networks. By hosting this flagship wrestling show, Netflix sets its sights on tapping into WWE’s extensive fanbase, offering global viewers live sports entertainment.
Expanding further into live sports, Netflix has sealed a pioneering three-year agreement to broadcast NFL games, commencing on Christmas Day 2024. The plan includes broadcasting two major NFL matchups and continuing to host at least one game on Christmas in 2025 and 2026. This pioneering move into live football serves as a strategic ploy to diversify content and allure advertisers. The NFL pact is poised to draw in millions of holiday viewers, presenting Netflix with a lucrative avenue to bolster its advertising revenue.
Lastly, basketball enthusiasts can look forward to Netflix’s new series “Starting 5,” delving into the behind-the-scenes lives of five NBA superstars throughout the 2023-2024 season. The series is set to debut on Oct. 9, targeting basketball aficionados far and wide.
Overall, Netflix is widening its horizons significantly, aiming to become the quintessential entertainment destination, extending beyond the realm of true crime documentaries and classic films.
The Analyst Consensus on NFLX and Price Targets
As Netflix steels itself for the upcoming earnings release on Oct. 16, analysts forecast an EPS of $5.07, a projected revenue growth of 14% year-over-year, and an anticipated operating margin of 28.1%.
Wall Street’s consensus rating for NFLX stands at a “Moderate Buy,” with a marginal 2.3% upside to the mean price target of $695.91. Nevertheless, as mentioned earlier, analysts have been steadily lifting their price projections. Additionally, there remains a notable 17.7% upside potential to the Street’s loftiest target of $800.
Among 39 analysts, 21 advocate a “Strong Buy,” two propose a “Moderate Buy,” 15 recommend a “Hold,” and one suggests a “Strong Sell.”
Adding to the optimistic sentiment, Evercore ISI’s assurance that Netflix’s stature in the streaming arena “remains as strong or stronger than ever” following a recent survey. The firm’s upped price target underscores the belief that Netflix’s inventive content strategies and swelling subscriber base will keep propelling growth and profitability.
Conclusion
With an impressive financial performance, strategic alliances, and a positive analyst sentiment, Netflix emerges as a compelling prospect for investors as September unfolds. Backed by robust earnings estimates, revised price targets, and winning strategies to expand its subscriber base, Netflix is well-poised to sustain its upward trajectory. As the streaming behemoth broadens its content repertoire and pivots with market dynamics, it cements itself as a dominant force in the industry, presenting investors with a mega-cap stock option worth deliberating this September.