Wedbush analyst Michael Pachter reiterated Netflix Inc
Netflix remains on Wedbush's Best Ideas List, given that the company can generate significantly more free cash flow than its guidance suggests. With its global content, Netflix has reached the right formula to balance costs and generate increasing profitability.
At the same time, its ad-supported tier and password-sharing crackdown should further boost cash generation.
Netflix is well-positioned in this murky environment as streamers are shifting strategy and will likely be valued as an immensely profitable, slow-growth company.
While ads are not yet directly accretive, the ad tier should continue reducing churn and attracting new subscribers. Pachter's positive thesis on Netflix partially relies on the password sharing crackdown driving subscribers higher and ARPU higher, which should begin in Q4.
Pachter's quarterly survey results are encouraging and suggest an upside in Q4. Wedbush once again commissioned a streaming-focused survey through Momentive in September 2023, tracking trends for Q3 and looking forward to Q4.
The proportion of U.S. subscribers on the ad-supported tier remained consistent in Q3. Still, he expects that to shift higher in Q4 and beyond.
In the U.S., Netflix continues to benefit from former account sharers, at least 10% of whom opted to pay more for the extra-member feature post-crackdown, resulting in higher ARPU.
Another 10% of former account-sharers kicked off extra members, many of whom have signed up or will sign up for their accounts in the coming quarters.
Pachter conservatively maintained Q3 estimate for revenue of $8.520 billion vs. consensus of $8.532 billion and guidance of $8.520 billion, based on Q3 global net paid subscriber growth of 5.5 million vs. guidance roughly in line with Q2 (5.892 million) and consensus of 6.016 million.
Q3 ARPU expansion will likely be muted, but he expects more significant ARPU expansion in Q4 and 2024. Pachter maintained his Q3 EPS estimate of $3.52, in line with guidance and consensus.
Bernstein analyst Laurent Yoon initiated coverage on Netflix with a Market Perform rating and a price target of $375.
Seaport Global analyst David Joyce initiated coverage on Netflix with a Buy rating and a price target of $482.
Price Action: NFLX shares traded higher by 2.32% at $381.22 on the last check Friday.
