Netflix Gaining Steam Ahead of Q3 Print
Are the tides finally turning for Netflix (NFLX)?
To give a little background, Netflix got a significant boost from the COVID-induced stay-at-home mandates, which led to a surge in its paid subscriber base. However, the pull-forward volumes, easing of lockdown measures, and increased competition is taking a toll on its subscriber growth rate.
Although Netflix stock traded sideways for more than 12 months, it has started to gain momentum ahead of its Q3 earnings announcement on October 19, appreciating significantly in only a few months. Additionally, investors’ sentiment has improved on Netflix.
TipRanks’ Stock Investors tool indicates that investors who hold portfolios on TipRanks maintain a Very Positive outlook on Netflix stock, with 0.4% of these investors increasing their exposure over the past month.
Noting the growth in Netflix stock, Andrew Uerkwitz of Jefferies stated, “NFLX stock has emerged from its slump, jumping ~22% in less than 2 months,” though Q3 estimates haven’t moved much. Uerkwitz sees the surprise success of Squid Games, Disney’s moderating subscriber growth, and its foray into the gaming segment through the acquisition of Night School as positives.
Thanks to the popularity of Squid Games, Uerkwitz expects Netflix’s Q3 net adds “to track in line” with management’s guidance. Notably, Netflix expects to add 3.5 million paid subscribers in Q3, compared to 2.2 million in the prior-year period.
He increased his “near-term subs (subscribers) slightly to reflect positive momentum from Squid Games.” Uerkwitz has a Buy rating on Netflix stock. Meanwhile, the analyst increased his price target to $737 (17.9% upside potential) from $620, stating that “the value opportunity in gaming becomes more clear and success of international content lifts pressure off Hollywood, justifying a higher multiple.”
Overall, Wall Street is cautiously optimistic about NFLX stock. Its analyst rating consensus of Moderate Buy is based on 24 Buys, 5 Holds, and 3 Sells.
Meanwhile, the average Netflix price target of $641.23 implies 2.6% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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