Why Netflix Stock Soared Almost 9.5% Yesterday?
Shares of streaming giant
Netflix (NASDAQ: NFLX)
increased by over 9% on September 28 on the back of an analyst
upgrade and the news of another hit on the platform.
An analyst from Atlantic
Equities, Hamilton Faber, upgraded NFLX stock to “overweight” from
“neutral” and raised the price target to $283, up from $211.
Netflix stock closed trading at $245.20 yesterday.
According to Faber, the company’s
ad-supported tier would be extremely beneficial for Netflix, and
the same has not been reflected accurately in its stock price.
Faber expects Netflix’s advertising ARPU (average revenue per user)
could rise to $26 per month, three times the rate of
After accounting for the
migration of subscribers towards lower-tier plans, Netflix’s
incremental sales might rise by almost $7 billion in the next three
Netflix also claimed that
Monster: The Jeffrey Dahmer
Story has already
accrued 196 million hours in its first week and is the biggest hit
since Stranger Things
4, which accrued 301
Netflix stock price is down 65% from all-time
Netflix is among the
on the S&P 500 in 2022 and is
currently trading almost 65% down from all-time highs. While the
pandemic acted as a tailwind for Netflix, the reopening of
economies, geopolitical tensions, and rising competition have all
resulted in a deceleration in top-line growth for the
Netflix increased its sales from
$20.16 billion in 2019 to $29.7 billion in 2021. Analysts tracking
the stock expect sales to grow by just 6.7% to $31.7 billion in
2022 and by 7.9% to $34.2 billion in 2023.
Comparatively, its earnings per
share are forecast to narrow to $10.09 per share in 2022 from
$11.24 per share in the year-ago period.
In order to offset its slowing
growth, Netflix aims to leverage its lower-cost ad-supported tier
in several countries, including the U.S., the U.K., Canada, France,
and Germany. The new tier will launch on November 1 and should be a
key driver of revenue growth for the company in the
Is NFLX stock price undervalued?
Netflix recently reported two
consecutive quarters of subscriber losses for the first ever in
2022. In Q2, its revenue grew by 18% year over year, and continued
a four-quarter slide for the streaming heavyweight. It ended the
June quarter with 220.67 million subscribers, a decline of 970,000
compared to the previous quarter.
But Netflix expects to increase
its subscriber growth in Q3. Its management forecasts to widen the
subscriber base by one million, lower than the 4.4 million users it
added in Q3 of 2021. Further, its ads-supported tier could attract
as many as 40 million subscribers by the end of 2023.
Netflix stock has surged 36.5% in
the last year, and it might gain momentum further if it continues
to expand its subscriber base.
Netflix’s engagement rates are
poised to move higher due to the global shift towards
For example, in August, streaming
accounted for 35% of the television viewing time in the United
States, compared to cable’s 34.5%. This trend is likely to gain
pace all over the world, making Netflix an enticing long-term
The final takeaway
Netflix stock is valued at 3.3x
forward sales and 24.5x forward earnings, which is quite reasonable
for a growth stock. If you are bullish on the long-term prospects
streaming stocks, Netflix
should be on top of your shopping list.
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