Netflix Stock has had a tough time this year. But several Wall Street analysts are confident of a recovery in 2023, which will push the stock ratings bullish.
On Friday, Wells Fargo analyst Stephen Cahall raised his rating on Netflix shares to Overweight from Equal Weight. He followed J.P. Morgan, which had reaffirmed its overweight rating a few days earlier. In mid-November, BofA Securities analyst Jessica Reif Ehrlich also reinstated stock coverage on her with a buy recommendation. Overall, 21 of 45 analysts are bullish on Netflix shares, up from 15 about three months ago.
Cahall turned to Netflix (Ticker: NFLX) as shares are down 47% this year compared to the S&P 500’s 17% drop. The video streaming company reported a loss of subscribers for the first two quarters of 2022. Competition is heating up, too: On Thursday, Walt Disney (DIS) Disney+ launched its $7.99/mo ad-based streaming tier, which rivals Netflix’s $6.99 entry-level tier. advertising service launched in November.
Analysts raise or repeat a Buy recommendation in many cases when they believe a stock is undervalued, or if a stock has fallen significantly and sees a tailwind that investors undervalue. BofA, J.P. Morgan and Wells Fargo see better days for Netflix, whether it’s a winning ad service for years to come or better content.
“In 2022, there were parts for the NFLX to work harder,” Cahall said. But “by looking at the same mosaic, we see opportunities for key performance indicators.
surpass in 2023
Wells Fargo data for November showed a 6 percent increase in monthly active users as year-end content begins to ship. The third season of the hit Emily in Paris debuts on December 21, while the second season of Roald Dahl’s Alice in the Borderlands and Matilda the Musical will arrive on Netflix in the last days of December.
Additionally, Cahall predicts that the ad-based service will increase its global subscriber count by around 23 million to 279 million by 2025, up from previous expectations of 256 million. “We don’t see how [ad-based video-on-demand] is anything other than a plugin for subscribers,” the analyst said.
BofA’s Ehrlich says the promotional offer will appeal to the Gen-Z age group, which tends to have less disposable income and has cut cable TV. Doug Anmuth of J.P. Morgan cited initial data from Apptopia suggesting that global app downloads improved after the ad service launched; Netflix had a 16% year-over-year drop in November compared to a 30% drop in October.
However, there are reasons for doubt. Inflation is hitting consumers’ wallets, and while the ad-based service is cheaper, it’s still too early to tell if it will significantly increase average revenue per user. Some market participants fear that higher-paying US subscribers, with bills of $16 or $20 a month, may switch to a cheaper ad product. This can lead to decreased revenue that ad revenue and new subscribers can’t make up for. For the three months ending September 30, the average monthly income for paid membership worldwide was $11.85.
Netflix did not immediately respond to a request for comment, but in its latest earnings report for October, the company said it typically doesn’t see a big change to its existing suite of plans.
“When you factor in the additional contributors we expect, you get significant additional revenue and revenue stream,” Netflix chief product officer Gregory Peters said at the time.
