On Wednesday, Pivotal Research adjusted its outlook on Netflix shares (NASDAQ:NFLX), increasing the price target to $1,250 from the previous $1,100, while reiterating a Buy rating on the stock.
This revision follows Netflix's report of a remarkable quarter, which saw the streaming giant add 19 million net new subscribers, far exceeding both Pivotal's 8 million and the consensus estimate of 9.5 million.
The stock, currently trading at $869.68 with a market capitalization of $372.5 billion, has demonstrated impressive momentum with a 79% return over the past year. According to InvestingPro, Netflix maintains a GREAT financial health score, though current valuations suggest the stock may be trading above its Fair Value.
Netflix's content lineup drove significant subscriber growth, contributing to a 16% increase in fourth-quarter revenue, which adjusts to 19% with currency considerations, surpassing the projected 14.5%. Additionally, the company achieved a 45% year-over-year growth in EBITDA, aligning with Pivotal's forecasts despite the substantial subscriber gains.
The fourth quarter also saw better-than-anticipated free cash flow, reaching $1.4 billion compared to the anticipated $1.2 billion by Pivotal and $1.0 billion consensus. InvestingPro data reveals Netflix's trailing twelve-month EBITDA stands at $9.98 billion, with the company maintaining strong profitability metrics and operating with a moderate level of debt.
The analyst from Pivotal Research highlighted that the strong quarterly performance led to an upward revision in revenue guidance for 2025, increasing by $500 million, and operating margin guidance, now projected to rise from 28% to 29%. The firm's positive stance on Netflix's investment potential remains firm, citing the platform's exceptional value proposition and the introduction of an ad-supported tier that is expected to drive further subscriber and average revenue per user (ARPU) growth.
With a P/E ratio of 48x and revenue growing at 14.8% annually, Netflix continues to command premium valuations. For deeper insights into Netflix's valuation metrics and growth potential, access the comprehensive Pro Research Report available on InvestingPro, which offers exclusive analysis of this entertainment industry leader.
The raised forecasts for subscriber numbers, revenue, operating margin, and free cash flow, coupled with an elevated terminal EBITDA multiple in the discounted cash flow (DCF) valuation from 18 to 20 times, underpin the new price target. This $150 increase to the year-end 2025 target price reflects Pivotal Research's confidence in Netflix's continued financial success and market performance.
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