On Monday, Oppenheimer adjusted its outlook on Netflix (NASDAQ: NASDAQ:NFLX) shares, raising the price target significantly to $725 from the previous $615, while retaining an Outperform rating on the stock. The revision reflects expectations of robust subscriber growth driven by the company's recent initiatives.
The firm anticipates a positive trend for Netflix's Average Revenue per Membership (ARM), forecasting a 4% year-over-year increase in 2024. This follows price hikes implemented in October 2023 in the United States, the United Kingdom, and France, as well as a gradual discontinuation of the Basic subscription tier. Additionally, the firm does not project a notable enhancement in advertisement monetization.
Despite the general understanding of ARM growth, Oppenheimer suggests that there could be an underestimation of Netflix's potential to increase net subscriber additions. Current estimates reportedly do not fully account for the optimistic third-party data and user engagement trends, particularly concerning the paid sharing and advertising-supported subscription plans.
The firm's analysis indicates that Netflix's subscriber numbers could surpass Wall Street's forecasts by as much as 17 million over the next three years. This would mean capturing around 60% of the estimated 100 million Paid Sharing market opportunity. The new $725 price target is based on a 26 times multiple of the projected 2026 earnings per share (EPS), or 24 times the firm's more optimistic scenario, compared to the industry peers' average of 24 times.
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