Netflix (NFLX:NASDAQ) stock jumps 4% as Goldman Sachs boosts estimates

The year is early, but Netflix (NFLX:NASDAQ) shares are rocking as Wall Street gets more optimistic on a comeback year financially for the streaming beast. The streaming giant’s stock rose nearly 4% Tuesday to close at $327.54 after Goldman Sachs (GS:NYSE) boosted its estimates for the streaming giant amid a weakening U.S. dollar, extending a recent winning streak for shares of the streaming giant.

“In just the last quarter, the FX landscape has changed dramatically with the U.S. dollar performance having a stark reversal in the last three months,” Goldman Sachs analyst Eric Sheridan wrote in a new note to clients. Sheridan notes the dollar index is down about 7% since Netflix’s most recent quarterly report.

In its note, Goldman boosted estimates for average revenue per user and GAAP operating income as a result of the dollar’s slide, in addition to upping its price target to $225 from $200 per share.

Shares of Netflix are up more than 10% so far in January, outperforming the Nasdaq Composite’s 2% gain. The stock is the best performing of the closely watched FAANG (Facebook, Amazon, Apple, Netflix, Google) complex, per Yahoo Finance data. In the past six months, Netflix shares are up more than 70%.

Netflix downloads have improved in recent months amid the release of new content as it continues benefiting from the global proliferation of Internet-connected devices and increasing consumer preference for on-demand video consumption over the Internet. ANetflix approaching 290 million global paid subs by 2027.

Additionally, the recent launch of NFLX’s ad-supported tier, Basic with Ads (BWA), as well as the upcoming Paid Sharing launch in early 2023 is expected to help re-accelerate subscriber & revenue growth while driving high-margin incremental revenue.”

Investors remain confident the platform’s ad-supported tier, which launched in November, in addition to its crackdown on password sharing, will invigorate both subscriber and revenue growth in 2023.

The stock has also been buoyed by a steady stream of successful content releases like “Glass Onion,” “Troll,” “All Quiet on the Western Front,” “My Name is Vendetta,” and “Wednesday.”

Despite its seeming bright start to the year, there is still a bearish overhang on the stock. Goldman Sachs maintained its Sell rating on the stock, citing concerns surrounding a possible consumer recession creating a “spin down” risk into cheaper plans, along with increased global competition, margin expansion, and high content spend.

Sheridan warns that Netflix’s foray into advertising could cause hiccups for the company, which had previously relied only on subscription revenue: “We expect a host of large scaled brand advertisers will adopt the offering but its current framework (large minimum commitment, above industry pricing, and limited measurement) could cap the advertising dollar opportunity.”

Barclays analyst Kannan Venkateshwar also shares this cautious optimism. He opined that the streaming company is “on a path” to add 2.7 million subscribers — significantly less than the 4.5 million the company has projected. A drop in app downloads, compounded by a plunge in viewership from last year’s record audiences for “Squid Game,” account for the subscriber shortfall, he said.

Overall, “we view NFLX as a show-me story with a light catalyst path in the next 6-12 months on newer product initiatives,” the analyst wrote.

Netflix is set to report earnings on Jan. 19 after the market close. Given that Netflix’s stock has been on fire, Wall Street is expecting a lot of good news right out of the gate in 2023. Analysts are anticipating fourth quarter subscriber net additions of 4.75 million, above consensus estimates (and the company’s current guidance) of 4.5 million. A miss on net subscription additions would snap a brief rebound for Netflix.

 

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