Netflix Inc (NASDAQ:NFLX)'s “paid sharing” model has and will continue to drive subscriber and revenue growth for the streaming service, its third quarter results released after the closing bell on Wednesday clearly demonstrated.
The streaming group’s earnings were in line with or ahead of forecasts and it added an impressive 8.8 million subscribers during the three-month period, with the “cancel reaction” to its crackdown on password sharing low according to management.
It also unveiled price increases for certain tiers in the US, UK and France that are set to boost its revenues in the coming quarters.
Investors were rightly impressed by the results, with Netflix stock trading 16.4% higher at US$402.95 on Thursday afternoon.
Bullish opinions
Market commentators, too, are bullish on the stock, with UBS analysts raising their price target to US$500 and awarding it a ‘Buy’ rating.
The analysts believe the stock will see tailwinds from paid sharing for several more quarters, in addition to its targeted price increases.
Further, they see Netflix as the main beneficiary of rationalizing competition in direct-to-consumer media.
“This shift will include reductions in content spend, less local content creation, market exits, increases in prices and more content licensing from third parties, all supporting Netflix's ability to drive subscribers and pricing while keeping a lid on content costs (management suggested business is nowhere near margin ceiling),” they wrote.
Bank of America analysts also reiterated their ‘Buy’ rating and US$525 price target on the stock post-earnings.
“We anticipate password sharing [crackdown] to drive member growth over the next several quarters which in combination with the announced price increases should buoy growth into the 2024 calendar year (likely more balanced between member growth and average revenue per member),” they wrote in a note to clients.
“Supported by its world-class brand, leading global subscriber base and position as an innovator we believe Netflix is poised to outperform.”
Dominance to continue
Oppenheimer analysts noted that, despite increased competition, Netflix remains the dominant streaming platform and maintains the largest market share of US TV viewership.
“We believe NFLX’s dominance will continue, given its clear advantage in producing high-engagement content and monetizing that content more effectively than peers,” they wrote.
They have an ‘Outperform’ rating and a US$475 price target on the stock.
Contact the author at emily.jarvie@proactiveinvestors.com
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