On Wednesday, Netflix (NASDAQ:NFLX) President of Advertising revealed that the ad monthly active users (MAUs) have surpassed 23 million, marking a notable increase from 15 million in November and 5 million in May.
Oppenheimer analysts say that this indicates a significant acceleration in the pace of ad subscriptions. In the near term, this acceleration points towards fourth-quarter net additions exceeding guidance and street expectations.
Looking at the medium-term outlook, the sustained pace of acceleration indicates ample room for subscriber growth in 2024. Analysts add that the bull thesis on NFLX is now “strengthening”, hence they hiked the price target to $600 per share.
“We now forecast $6B of ad revenue in 2025. Assuming a conservative 80% margin, this suggests $4.8B of incremental EBITDA vs. $7.3M total in '23E,” analysts said.
“This should then allow cash content spend of $19.5/$21B in '25/'26 vs. $17B guidance, leaving ~$17.5B of cash after $14.5B of buybacks. Either NFLX can increase their content moat, repurchase more stock or both.”
Analysts are adjusting projections, now estimating fourth-quarter and 2024 net additions at +10 million and +24 million, respectively, compared to the previous figures of +9 million and +21 million. Street estimates stand at +9 million and +18 million for the same periods.
Assuming a year-end 2024 ad MAU of 50 million (approximately 25 million subscribers), the revised estimates project total revenue of $40 billion and $46 billion for 2024 and 2025, respectively. This reflects a robust year-over-year growth of 20% and 14%.
In contrast, Street estimates are at $38 billion and $43 billion, reflecting a comparatively lower growth rate of 14% and 11% for the same periods.
Oppenheimer has an Outperform rating on NFLX. Earlier this week, Citi analysts also weighed in positively even though this broker slashed its rating on the stock recently.