What a difference a day makes. Netflix’s year-long stint in Wall Street’s doghouse came to end Oct. 18 following the streamer’s joyful third-quarter fiscal results. The company’s stock is up almost 15% in Oct. 19 trading — the biggest share price increase since January 2021. The stock price had declined 60% through the first nine months of the fiscal year.
Wall Street firms JPMorgan Chase & Co., Deutsche Bank, Wedbush Securities, MoffettNathanson and KGI Securities Co. all upgraded their share price projections for Netflix after the streamer added 2.4 million subscribers in the quarter, with plans to add 4.5 million in the current fourth quarter, ending Dec. 31.
“‘Crawl, walk, run’ seems to be management’s mantra here,” JPMorgan Chase’s Doug Anmuth wrote in a note regarding the streamer’s pending ad-supported subscription plan.
Notably, Wedbush Securities’ media analyst Michael Pachter, a longtime bear on Netflix’s stock, contends the streamer is doing the right thing introducing a lower-priced subscription tier.
“We think Netflix made a great decision to launch an ad-tier, as growth had stalled in [North America] and was heading toward full market saturation in Europe, the Middle East and Africa,” Pachter wrote in an Oct. 19 note. “Its ad-tier should limit churn going forward, while its content strategy appears to be smoothing out with greater discernment and a higher mix of original titles.”
That said, Pachter doesn’t believe that Netflix’s stock price will return to its 2021 halcyon levels for many years, but the analyst is raising its share price target to $325 from $280.
“Our primary takeaway from the webcast 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,” Pachter wrote. “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.”
Michael Nathanson, with the research firm MoffettNathanson in New York, contends Netflix is out of choppy waters for now, but that challenges remain as the streamer launches an ad-supported consumer option and attempts to reign in non-paying users.
“To the company’s credit, we are witnessing a rise of a new version of Netflix,” Nathanson wrote.