On Wednesday, Deutsche Bank (ETR:DBKGn) revised its price target on Netflix (NASDAQ:NFLX) shares, raising it significantly from $650.00 to $875.00, while keeping a Hold rating on the stock. The adjustment reflects Deutsche Bank's increased forecast for Netflix's multi-year earnings and free cash flow (FCF), attributed to a substantial upward revision in subscriber growth expectations.
The bank's analysts noted that the new price target is driven by an anticipated rise in earnings and FCF, stemming from a much higher subscriber forecast. This optimistic subscriber outlook is only partly tempered by a lower average revenue per user (ARPU) due to the strong U.S. dollar.
Netflix's impressive fourth-quarter net additions, which reached a record high of 19 million, were a key factor in revising the forecast upwards. According to analysts, the management has clarified that this surge was not disproportionately driven by singular events such as the Tyson vs. Paul fight or NFL content, suggesting that the momentum could be sustained.
For 2025, Deutsche Bank now expects Netflix to add 30 million net subscribers, a decrease from their 2024 estimate of 41 million but significantly higher than the previous forecast of 16 million for 2025. The analyst highlighted the impact of measures to curb password sharing, combined with a robust content release schedule, which have exceeded initial expectations in attracting new subscribers.
The analyst also reflected on the premature downgrade of Netflix's rating to Hold, acknowledging it may have been too early in hindsight. However, he mentioned that there is no compelling upside case to justify an upgrade at this time. One factor that could potentially influence earnings estimates is a reversal of the recent strength of the U.S. dollar. Yet, if the Trump administration's strong dollar policy prevails, it could pose further risks to the estimates.
Currently, Netflix is trading at a multiple of 35 times its estimated 2025 earnings per share (EPS) and 29 times its 2026 EPS. Deutsche Bank's analysis suggests that at these valuation levels, the stock does not present an attractive investment opportunity.
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