Netflix Inc (NASDAQ:NFLX) is positioned to out-muscle its competitors in the ongoing streaming wars, analysts at Wedbush wrote in a note to clients Thursday.
Wedbush kept the streaming giant on its Best Ideas List, reiterating its Outperform rating and $525 price target. Netflix shares rose 0.5% Thursday to $491.61.
"We think Netflix has reached the right formula with global content creation, balancing costs and increasing profitability, while its password sharing crackdown and eventually its ad-supported tier should further boost cash generation,” the analysts wrote.
As such, Netflix “can generate significantly more free cash flow than its guidance suggests,” they added.
When Netflix released its fiscal third quarter results in October, it raised its fiscal 2023 free cash flow guidance to roughly $6.5 billion from a prior forecast of at least $5 billion.
“Netflix is well-positioned in this murky environment as competitors have yet to settle on a coherent strategy; accordingly, we believe Netflix should be valued as an immensely profitable, slow-growth company,” the analysts wrote.
According to a third-party survey commissioned by Wedbush, Netflix subscribers increased slightly in the US, as did the proportion of subscribers on its ad-supported tier.
Additionally, new and recurring subscribers are also more likely to opt for the ad-supported tier in the first quarter of 2024, the survey found.
“Although ads are not yet directly accretive (we think they will be accretive by next year), the ad-tier should continue to reduce churn and draw new subscribers to the service,” the analysts wrote.
“Our positive thesis on Netflix was partly based on the password sharing crackdown driving both a) net subscribers higher and b) [average revenue per user] higher; recent results and our survey reinforce our thesis for Q4.”
Netflix is scheduled to report its fourth quarter results on January 23 after market close.