Citi has reiterated its Neutral stance on Netflix (NASDAQ:NFLX) (NASDAQ: NFLX), maintaining a price target of $675 for the streaming giant's shares.
The firm's assessment suggests skepticism regarding the company's ability to achieve the optimistic earnings per share (EPS) of $25 next year, as anticipated by some investors.
Netflix's potential topline growth of 15% is considered to be driven by three main factors: net subscriber additions, price increases in the U.S., and price hikes outside of the U.S. Citi's analysis supports the possibility of Netflix achieving a net subscriber growth of 7%, translating to about 20 million new subscribers, which aligns with consensus estimates.
Additionally, the firm finds a 12% price increase in the U.S. market to be a reasonable expectation, contributing approximately 3% to overall growth. This would likely boost the stock in the short term following an announcement of the hike.
Nevertheless, Citi expresses doubts about the anticipated growth in average revenue per user (ARPU) outside of the United States, which is less likely to see the 5% increase needed to meet the 15% overall revenue growth target.
In other recent news, Netflix has witnessed several financial developments. Deutsche Bank has maintained its hold rating on Netflix while increasing the stock target to $650, citing potential growth in revenue and earnings. Meanwhile, JPMorgan reiterated its Overweight rating on Netflix, emphasizing the company's potential for strong growth and increasing free cash flow. TD Cowen also held a Buy rating for Netflix, indicating faith in the company's advertising growth trajectory.
However, Barclays downgraded Netflix from Equalweight to Underweight due to concerns over the company's growth prospects. In terms of earnings and revenue, analysts from firms such as KeyBanc Capital Markets, JPMorgan, and Evercore ISI project positive revenue growth for Netflix, with advertising expected to account for more than 10% of total revenue by 2027.
In other company news, the Philippines has imposed a 12% value-added tax on digital services provided by tech giants like Netflix. This move is expected to generate approximately 105 billion pesos ($1.9 billion) from 2025 to 2029, with 5% of these funds earmarked to support Philippine creative industries.
InvestingPro Insights
While Citi maintains a cautious stance on Netflix's ability to reach ambitious earnings targets, recent InvestingPro data paints a picture of a company with strong financial performance. Netflix's revenue for the last twelve months as of Q2 2024 stands at $36.3 billion, with a notable revenue growth of 13%. The company's profitability is evident, with a gross profit margin of 43.84% and an operating income margin of 23.82%.
InvestingPro Tips highlight Netflix's position as a prominent player in the Entertainment industry, with a high return over the last year. The stock's performance has been impressive, with a 94.85% price total return over the past year and trading near its 52-week high. However, it's worth noting that Netflix is trading at high earnings and valuation multiples, which aligns with Citi's cautious outlook.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for Netflix, providing deeper insights into the company's financial health and market position.
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