Netflix Eyes Record Highs: Leverage, Pricing Power, and Positive Guidance Propel Stock

Once plagued by post-COVID growth struggles, Netflix has shifted its narrative. The focus is now on leverage, fueled by a growing member base, increased prices, and anticipated ad sales throughout 2024. The company’s undervalued stock growth is underscored by sustained double-digit top-line growth, margin expansion, and the potential to achieve an all-time high this year.

Trading at a modest 30 times its 2024 analyst consensus earnings estimate, Netflix appears undervalued for a high-quality, industry-leading consumer tech company with promising growth and margin prospects. Analysts predict a potential price-multiple expansion, accelerating the stock price rally in the coming months.

Analyst sentiment aligns with the positive outlook, with a consensus upgrade from “hold” to “moderate buy” in the last 12 months. The price target is also on an upward trajectory, indicating growing confidence in Netflix’s performance. While the consensus target suggests fair value at $495, recent analyst activities, especially in January 2024, suggest continued positivity. Upgrades, initiated coverage with high price targets, and boosted targets averaging 20% above pre-release levels signify an upward trend in sentiment.

Netflix delivered a solid Q4 performance, surpassing consensus expectations despite some non-cash impairments affecting the bottom line. The 12% growth in the top line was fueled by paid-sharing, price hikes, and the expanding core business. Global membership saw a nearly 13% increase, and this growth momentum is expected to persist in 2024.

While facing challenges like FX headwinds and European asset valuations, Netflix remains resilient. The GAAP earnings of $2.11 were slightly below consensus, offset by a full-year margin expansion to 21%, surpassing targets. The company’s guidance aligns with analysts’ expectations, with a positive outlook driven by leverage from a growing subscriber base and increased pricing.

Netflix’s $5 billion partnership with TKO Group for WWE Raw, set to start in 2025, is one among several strategic moves expected to drive future growth. The 10-year exclusive deal brings WWE content to Netflix, aligning with the company’s content-driven growth strategy. Analysts view this move positively, considering WWE’s substantial revenue of over $1 billion in 2023.

Netflix’s stock, already on an upward trajectory, surged 10% following the Q4 release, supported at a critical level. Analysts’ raised price targets and the confirmed trend suggest a potential move to the $600 range. With expectations of similarly strong results in Q1, there’s anticipation for Netflix to reach a new all-time high in the first half of 2024.