Netflix has taken investors on a wild ride over the past two years. Shares of the content streaming giant soared during the tech-company buying frenzy, closing at an all-time high of $691.69 on Nov. multiyear of $164.28 on June 14, 2022, as its growth slowed, it lost recipients for the first time in more than a decade, and rising interest rates deflated its valuations. Mind you, after going under, the value more than doubles to about $380 in the last year.
Is it finally Netflix’s time after those huge price swings? Morgan Stanley’s analysis department considers that it may be facing a somewhat more positive scenario for the coming months. “We are optimistic about Netflix, since the adjustment plans, the withdrawal of competitors and the disciplined trends of the expenses improve our perspectives,” the entity explains. That’s why they’ve warned their price target at $450, which reflects roughly 25 times their 2005 earnings per share forecast of $20, with a six-month discount.
“For the year 2024 we foresee an EPS growth rate of 20% over three years, which, from our point of view, supports this multiple premium”, highlights the North American bank. However, twelve months from now, these experts consider that there may be more risk of compression of their multiples. Analysts at the US banking firm expect the company to offer a better entry point. Netflix is up nearly 50% or $65 billion so far this year, surpassing $200 billion in market capitalization.
Consensus 24-year adjusted earnings per share estimates have risen approximately 10% over the year, implying that the 24-year P/E multiple has risen 35-40% over the year. Morgan Stanley says that since the announcement of its compensation policy on May 23, the company has added about $40 billion. “To write an IRR of 20% from here, the shares will have to trade at almost 30 times our expected earnings per share of $20 in 2025 based on our estimate for 2024 of about 26 times our expected earnings per share in the bullish scenario,” he says.
Improved subscriptions
Overall, Morgan Stanley believes that Netflix is once again outperforming its competitors. “Shared payment services demonstrated the growth of more net users than other players within the sector and wiped out our previous forecast,” these experts comment. With these wickerwork, the bank believes that the company is about to demonstrate how good the streaming business can be on a large scale: “The combination of accelerating revenue with limited growth in expenses will improve profitability, in particular the RNOA and ROE, by almost 1,000 basis points from 2022 to 2025, reaching 28% and 21% respectively”.
“Our OI margins primarily reflect the benefits of declining content spend in 2023 – including the impact of the writers’ strike – on content amortization in 2024, and an expectation of continued flat marketing spend compared to other rivals. es”, highlights Morgan Stanley positively. Analysts of the North American firm slightly increase their revenue forecast for 2024 for revenue per user (ARPU) from additional subscribers and the monetization calendar compared to their previous expectations .
“We are increasing our global net profit forecast to reflect a greater mix of new subscribers vs. member sub-accounts, especially in the UCAN region… However, this is offset by an expectation of more modest sequential ARPU improvement in 3 quarters and 4. (…) We continue to expect a normal cadence of price increases to resume next year”, they conclude before assuring that Netflix is finding the right path to growth and profitability.
