By Senad Karaahmetovic
A Macquarie analyst upgraded shares of Netflix (NASDAQ:NFLX) to Neutral from Underperform with a price target of $230.
The analyst made the move after a deep dive into the company’s ad tier financial potential forced him to raise revenue estimates for 2025. The analyst forecasts that Netflix with ads could generate up to $3.6 billion in UCAN ad sales by 2025 and $8.5 billion globally, which translates into a new $2 billion in total incremental revenue.
"This seems like a large number, coming from zero – but assuming a lower subscription price for the service, and the assumption that a third of all users migrate to this ad tier, we come to a total incremental revenue figure of $1.1bn, only a 7% increase from our estimate prior to factoring in ad growth," the analyst said in a client note.
On the other hand, a Bank of America analyst reaffirmed the Underperform rating and a $196 per share price objective as he believes "any potential realized benefits from the company's advertising initiatives remain several quarters off, at a minimum."
Moreover, the analyst sees a premium valuation that could see shares trade under pressure going forward.
"Slower/low-growth companies with AVOD offerings covered by our media team trade at an average adjusted 2023E P/FCF multiple of 15.0x vs. NFLX, currently trading at 200x P/FCF. We believe this is a steep price to pay for a company currently in flux amid a weakening backdrop for advertising along with a highly competitive AVOD/OTT environment," the analyst wrote in a client note.
Netflix shares are up almost 1% today.