Netflix Stock Deserves a Place in the Magnificent 7

But with Netflix set to report its first-quarter earnings on April 18, investors shouldn’t sleep on the stock. Wall Street is expecting a solid quarter for the company, with earnings per share forecast to rise 56% to $4.50 on revenue of $9.3 billion. It’s also expected to add a very solid 4.9 million net subscribers.

Shares of Netflix are up more than 30% this year, and despite that pop, the stock is still priced at a valuation of more than 35 times earnings forecasts for 2024, a reasonable, if not exactly cheap, price given that analysts are predicting EPS to increase by 43% this year.

Nor is it all about this quarter. Despite competition from the likes of Apple and Amazon and legacy media giants such as Walt Disney and Comcast, Netflix remains a market leader. It’s all about the vast library of content, which is only getting larger. Consumers, faced with a dizzying array of streaming choices, may opt to cut some of their monthly plans and focus on leaders like Netflix.

“Many streaming competitors appear to be in disarray, and we believe these platforms are more susceptible to churn,” wrote Monness Crespi Hardt analyst Brian White in an earnings preview note.

Analysts are particularly bullish about Netflix’s growing bet on sports content, which includes the popular F1 racing documentary series Drive to Survive and the golf show Full Swing. Adding more nonscripted shows helped Netflix amid the recent Hollywood writers and actors strikes. Netflix also has a buzzy live event planned for July, when Mike Tyson will fight social media star/boxer Jake Paul.

And Netflix has another big content win to tout for next year. The company has a deal with the WWE to start streaming the live wrestling show Raw on Monday nights beginning in 2025, a potential move that could boost subscriber levels—especially now that Netflix is cracking down on free password sharing —and advertising growth.

“Paid sharing has room to run, and Netflix’s advertising initiative is still in the nascent stages of development,” wrote White.

J.P. Morgan analyst Doug Anmuth also noted that the WWE deal will give Netflix “valuable, differentiated content with favorable economics & content rights.” Anmuth added that the Tyson-Paul battle “could be the most watched boxing match ever given ease of access & NFLX’s large global sub base, and it should attract meaningful ad dollars while boosting a seasonally slower period in midsummer.”

Ultimately, Netflix should continue to benefit from what Wedbush Securities analyst Alicia Reese calls “the right formula with global content creation, balancing costs, and increasing profitability.”

Reese noted that Netflix’s continued expansion into gaming could boost licensed intellectual property revenue, and that its cheaper ad-supported plan should reduce Netflix’s churn and lead to growth in viewership. She upped her price target on Netflix to $725, which is almost 20% above the current price and one of the most bullish forecasts on Wall Street.

Reese wrote that a $725 price represents a fair value of 36 times her 2025 earnings forecasts. If Netflix were to top her target, it would set a record high in the process, surpassing the intraday high of around $700 from November 2021. Pivotal Research’s Jeffrey Wlodarczak is even more bullish. He recently upped his price target to $765, arguing that Netflix is now “the world’s dominant pay video entertainment platform.”

Sure, FAANG may be no more. But it’s time to start adding Netflix to an Exceptional Eight.

Email: paul.lamonica@barrons.com