On Friday, Rosenblatt Securities updated its outlook on Netflix Inc (NASDAQ: NASDAQ:NFLX) shares, increasing the price target to $635 from the previous $554, while maintaining a Neutral stance on the stock.
The firm attributed the revised target to Netflix's better-than-expected net subscriber growth in the second quarter of 2024, which surpassed the concerns raised in Rosenblatt's Q2 preview.
Netflix's recent performance indicated a significant uptick in subscriber numbers, a positive development for the streaming giant. However, the forecast for the third quarter of 2024 suggests a substantial deceleration in subscriber growth.
This raises questions about whether the slowdown is a temporary seasonal pattern or an indication of a shift towards a slower growth phase as the company matures.
The firm noted that while Netflix is experiencing a slowdown in subscriber growth, with the possibility of numbers reverting closer to the 9 million mark seen in 2022, as opposed to the 30 million in 2023, the company's profit margins have continued to expand. This expansion is a silver lining amidst the uncertainty surrounding subscriber trends.
The potential for advertising to significantly contribute to Netflix's growth in 2025 is still considered minimal due to its current low level of penetration in the company's revenue streams. Despite these risks and uncertainties, Rosenblatt Securities decided to raise the price target, aligning it closely with the stock's recent trading levels.
The new price target of $635 represents a 15% increase from the previous target and is based on a price-to-earnings-growth (PEG) adjusted price-to-earnings (PE) ratio for the year 2025.
This calculation uses a 26.2x multiple of the estimated earnings per share (EPS) for 2025, based on a compound annual growth rate (CAGR) of 26.2% from 2024 to 2026. The prior target of $554 was based on a lower maturity multiple applied to EPS projections ten years ahead, discounted to one year from now.
In other recent news, Netflix reported its financial outcomes for the second quarter, which included a stronger-than-expected increase in subscribers, but the company's future revenue outlook remains varied. After the report, Goldman Sachs adjusted Netflix's price target to $659 from $650, maintaining a Neutral rating on the stock.
Loop Capital also maintained a Buy rating, emphasizing Netflix's dominance in the streaming industry. Deutsche Bank, while acknowledging Netflix's market leadership, raised its price target to $590 from $575 but maintained a Hold rating due to concerns about high valuation and potential deceleration in revenue and earnings growth.
In other corporate news, Crowdstrike, a cybersecurity firm, experienced a glitch that resulted in a widespread tech outage affecting various sectors, including airlines, media companies, banks, and telecoms firms.
This incident led to a significant drop in the company's stock. Meanwhile, Taiwan's semiconductor leader, TSMC, saw its shares fall by 3.5% after strong earnings reports were overshadowed by trade tensions between China and the U.S.
In the financial sector, U.S. Treasury yields are on the rise despite an increase in jobless claims, and the Federal Reserve is anticipated to cut rates in September. Investors are closely monitoring the earnings reports of companies like American Express (NYSE:AXP), Regions Financial (NYSE:RF), and Huntington Bancshares (NASDAQ:HBAN). These are some of the recent developments that investors should keep in mind.
InvestingPro Insights
Netflix Inc (NASDAQ: NFLX) has recently been highlighted by Rosenblatt Securities for its impressive net subscriber growth. Complementing this analysis, InvestingPro data provides additional insights into the company's financial health and market performance. As of the last twelve months leading up to Q1 2024, Netflix boasts a solid market capitalization of $277.09 billion, reflecting its significant presence in the market. The company's P/E ratio stands at 43.06, indicating investor confidence in its earnings potential relative to its current share price.
Moreover, the robust revenue growth of 9.47% during the same period underlines Netflix's ability to expand its top-line figures. In line with Rosenblatt's observations on profit margins, Netflix's operating income margin of 22.54% demonstrates its efficiency in converting revenues into profits. An InvestingPro Tip worth noting is that Netflix is recognized as a prominent player in the Entertainment industry, with cash flows that can sufficiently cover interest payments, suggesting financial stability.
For those looking to delve deeper into Netflix's financial landscape, InvestingPro offers additional tips, including the company's valuation multiples and its performance over various time frames. Subscribers can access these insights and more by using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. With 15 more InvestingPro Tips available, investors can gain a comprehensive understanding of Netflix's position in the market and make more informed investment decisions.
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