Netflix Inc (NASDAQ:NFLX) has shown with its surprise expectation beating quarterly results that it may be time for investors to rethink and recategorize the video streaming company.
Now, as an acronym FAAGs probably needs some work, nevertheless, it is evident that Netflix is now less attached to its big-tech-peers, and, is settling into a new identity that’s more akin to a traditional media company.
Or, as stockbroker Wedbush puts it, the world’s largest streaming company “should be valued as an immensely profitable, slow-growth company.”
Netflix is poised for free cash flow growth in the coming years, Wedbush analyst Michael Pachter said in a note, though without the fast-escalating user numbers and a “murky” economic environment, the analyst doesn’t believe the Netflix share price will approach levels seen in 2021 for many years to come.
Giddiness was, however, very much present with the release of Tuesday evening’s quarterly results as the stock shot up some 15% to trade at US$278.15 on Wednesday.
Whilst avoiding hyperbole the Wedbush analyst raised the broker’s target price to US$325 per share from US$280 to meet the increased cash flow expectations after the company ‘sailed past’ guidance for 1mln new subscribers in Q3, instead adding 2.4mln.
“There is clearly significant upside to Netflix’s recent share price, and we therefore reiterate our OUTPERFORM rating,” Pachter said.
He added: “Q4 global subscriber net additions guidance of 4.50mln was above consensus expectations for 4.3mln – and we think it will land closer to our 4.85mln estimate.”
Looking into next year, Pachter sees an evolving business emphasising on cash.
“Notably, Netflix is planning a password crackdown launch in early 2023, and plans to withhold subscriber guidance beginning in January, focusing instead on revenue guidance given its additional revenue streams.
“Our primary takeaway from the call is that even if ads are not directly accretive (and we think they will be increasingly accretive over time), the ad-tier should reduce churn.
“This will drive a re-acceleration of subscriber growth, and contribute increasingly to free cash flow generation as Netflix continues to improve its content quality and lower overall spend per subscriber.”