Netflix (NFLX) stock closed at an all-time high of just over $772 on Monday, continuing strong momentum from last week’s better-than-expected quarterly results.
Netflix beat every major financial indicator in its third-quarter results last week, and its revenue forecast for this quarter exceeded Wall Street expectations. On Friday, the streaming giant hit a record closing price of just under $764.
“In our view, Netflix remains one of the best-positioned companies in the media industry, with several “We have the power to drive growth,” he said, citing the company’s rapid growth in the advertising field and efforts in the gaming field. , sports, and live events.
The analyst reiterated his buy rating on the stock and raised his price target to $800 from $740.
But the stock is up nearly 60% since the beginning of the year, and its high valuation is causing some concern.
Too good to be true?
Investors have rewarded Netflix for diversifying its revenue streams, with its ad inventory now accounting for more than 50% of subscribers in countries where Netflix is available.
The company’s revenue growth has benefited not only from advertising but also from a crackdown on password sharing by streamers, which analysts say is largely complete. Once the crackdown is complete, subscriber numbers should fall compared to last quarter, but future price increases are likely to offset the economic slowdown.
“The company has mostly weathered[the password-sharing crackdown]so revenue growth from 2025 onwards will be limited by slower subscriber growth and more normal pricing,” said Brian Kraft, an analyst at Deutsche Bank. “We will continue as we return to our rhythm.” Friday.
Wall Street analysts say the price hike will be a positive catalyst for the stock price in the short term because of the company’s pricing power relative to its competitors.
“Given Netflix’s low cost per hour watched, we believe the company has room to increase its U.S. prices by 12% in 2025,” Citi analyst Jason Bazinet said in a note ahead of the report. “There is,” he said.
Netflix co-CEO Greg Peters said the company will continue to “evolve” pricing for each tier, but that “we like the lower price point and increased accessibility that comes with advertising plans,” which cost $6.99 in the U.S. ” .
Still, Netflix recently revealed that engagement levels were roughly flat year-over-year, which could be a headwind when it comes to the company’s ability to raise prices.
“Much of the subscriber growth represents improved monetization of an existing (and non-growing) user base,” MoffettNathanson analyst Robert Fishman said in a note to clients following the report. “There appears to be a strong trend towards this trend, so it is questionable whether this momentum will continue next year.”
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“Netflix stock is very expensive for a company whose own guidance suggests that its revenue will decelerate into 2025.” It was announced that the growth rate would slow to 11-13%.
Fishman maintained his rating on the stock at “neutral.” He expects the stock to fall to $670 by the end of the year.
“At the end of the day, we all know that Netflix is the winner of the streaming wars,” Fishman continued. “Netflix has a bright future as the king of premium long-form media. But the market is pricing Netflix’s stock as if it can go much higher, and we’re sitting on the sidelines. It’s bothering me.”
Netflix last increased the price of its Standard plan in January 2022, increasing the monthly fee from $13.99 to $15.49. At the same time, we increased the price of our premium tier by $2 to $19.99 per month. Last October, the company raised the cost of that plan again to $22.99.
Netflix recently phased out its lowest-priced ad-free streaming plan, making the $15.49 Standard plan the cheapest plan for an ad-free experience.
Netflix has yet to raise the price of its two-year-old ad-supported service, which at $6.99 per month makes it one of the cheapest ad plans among major streaming players.
“Rises have been long overdue, and that’s what investors are really looking for,” Bloomberg Intelligence analyst Geetha Ranganathan told Yahoo Finance’s Market Domination after the earnings report. Ta.
“If you look at the big picture, the stock has a very high valuation and earnings growth supports that high valuation,” he said. “We need these price increases to have stable revenue.”
But ultimately, it will be difficult for other companies to catch up, Ranganathan said. “Netflix has definitely won the streaming war,” Ranganathan said.
File photo: Ashley Park, Lily Collins, Filipino Leroy Beaulieu, William Abadi, Lucas Bravo, Bruno Gouerie and Samuel Arnold at Netflix’s Emily in Paris at the Moderno Cinema in Rome Attending the Season 4 European premiere and taking a selfie, Italy, September 10, 2024. REUTERS/Remo Casilli/File Photo (REUTERS / Reuters)
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canalEmail LinkedIn, alexandra.canal@yahoofinance.com.
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