Benchmark analyst Matthew Harrigan has reaffirmed his 'Sell' rating on Netflix Inc, setting a price target of $545. Harrigan projects Netflix to reach approximately 431 million global members by 2033, with operating margins exceeding 35%. He highlights potential risks to member growth, particularly in the medium to long term, which may not align with his forecast due to sensitivities related to the ten-year member base and operating margins.
Despite recognizing Netflix more as a media rather than a tech stock, Harrigan's valuation reflects a fair 18.2 times EBITDA multiple for 2025 and a 14.1 times target EBITDA multiple by 2033. The analyst foresees that top-line and profitability growth will increasingly rely on pricing strategies and newer initiatives, such as advertising-based video on demand (AVOD) and extensions, including gaming, as growth in subscriber volume control slows. As Netflix prepares to release its earnings report later this week, Harrigan notes that the market will be keenly watching for any announcements regarding price hikes.
In his analysis, Netflix needs to generate a compound annual growth rate (CAGR) of 5.5% in pricing by 2033 to justify its current stock price of roughly $715. This comes amidst consumer resistance to price increases and a concentration of member growth in emerging markets that typically have lower price points. Benchmark's baseline forecast includes over 430 million global members by 2033, increasing from approximately 277 million today, coupled with a secure operating margin of over 35%. The analyst expresses greater confidence in the margin projections than in member growth forecasts.
Harrigan also points out that Netflix's advertising revenue is still in its early stages, with rapid inventory growth not yet matched by scale in monetization. Harrigan's estimates for Netflix's third-quarter 2024 performance anticipate reduced momentum from paid sharing and an underdeveloped AVOD contribution, along with the impact of foreign currency fluctuations. Additionally, Netflix is advancing its internal ad tech platform for a wide-scale rollout in 2025 while it continues collaborating with Microsoft's Xandr on the supply side.
Furthermore, Netflix is experimenting with a simplified TV home page design intended to enhance content discoverability, particularly across genres. Harrigan references a report by Britain's The Telegraph, which discusses the U.K. streaming market and the BBC's efforts to compete with Netflix, such as the potential expansion of BBC’s iPlayer to incorporate shows from other U.K. channels. Harrigan projects Netflix's third-quarter revenue at $9.79 billion with earnings per share (EPS) of $5.18.
As of the latest data, Netflix's stock experienced a slight decrease of 0.66% to $708.30. This analysis comes amid ongoing discussions about Netflix capitalizing on an ad-supported tier and exercising its pricing power ahead of Q3 earnings. Image via Shutterstock. Note: Benzinga doesn't provide investment advice.
