UPDATED with closing price. After Netflix reported better-than-expected subscriber growth and marked a key financial milestone, the company’s shares surged 17% amid a wave of euphoric sentiment from Wall Street analysts.
Upgrades and increased price targets rained down on Netflix after Tuesday evening’s financial results as well as the company’s declaration that it will turn cash-flow positive in 2022 and won’t need more debt financing.
Shares in the streaming leader jumped at the opening bell today and never let up, reaching a high of $593.29 before closing at $586.34. Trading volume was more than seven times normal levels.
Eric Sheridan of UBS upgraded Netflix to “buy” from “neutral,” explaining that he sees it as a “long-term winner as more consumer habits shift globally toward a handful of streaming media platforms.” The quarterly earnings report “will act as a further validation point,” he added.
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Sheridan also lifted his 12-month price target to $650 from $540.
Along with UBS, another major institution issuing an upgrade was Wells Fargo, which moved from “equal-weight” to “overweight.”
Jeffrey Wlodarczak of Pivotal Research offered what he said was Wall Street’s loftiest projection for Netflix shares at $750, up from $660, with a “buy” rating still in place. Even though a U.S. price hike just took effect, Netflix “offers consumers an increasingly compelling unique entertainment experience on virtually any device, without commercials at a still relatively low cost,” the analyst wrote.
Michael Morris of Guggenheim described the earnings report and financial outlook as a “flex” on competitors. Benjamin Swinburne of Morgan Stanley also cited the cash-flow guidance as a major turning point. “After a debt funded business model shifting from licensed to original programming over the past five years, Netflix has scaled to a self-funded and now a highly free cash flow generative business. This will strengthen its competitive position, reduce the risks to the business, and reinforce our ‘overweight’ view.”
Along with expressions of awe, there were nevertheless a few more measured opinions to be found on the Street.
Michael Nathanson of MoffettNathanson maintained his “neutral” rating, but boosted his price target by $45 to $465. He sees tough comparisons with 2020 as a limiting factor for the stock, but praised the company’s execution in a note to clients.
“Looking back over Netflix’s 2020 results, it is still striking to see how the Covid-19 pandemic has been nothing but a major boon to the company’s operations,” he wrote. “As much of the world is still shuttered in their homes with nowhere to go and nothing to spend their money on, consumer adoption of streaming services has been accelerated by years. With theatrical releases still few and far between and a lack of new scripted programming, Netflix’s advantage vs. other entertainment choices has massively increased over the past year.”
Noted bear Michael Pachter of Wedbush Securities is sticking with his “underperform” rating on Netflix, but he raised his price target dramatically, to $340 from $235. “While we are far more constructive about Netflix than we have been at any point in nearly a decade, we continue to question its valuation,” he wrote in a research note.