It’s a curious thing to say a stock is still irresistible even after it’s rallied 350% and just closed at a new high. But in the case of Netflix (NFLX), it’s hard to resist the allure. Just two years ago, the company watched its shares plummet by 80%. Now, it’s experiencing a remarkable turnaround that shows no signs of slowing down.
Netflix found itself a prominent member of the coveted FAANG group of tech stocks during the pandemic-fueled bull run. However, when the bubble burst around November 2022, Netflix suffered the most significant decline. Investors who rode out that volatility or entered during the early stages of the current rally are now reaping the rewards. As we approach the end of the year, Netflix shares have delivered the most value in the past 12 months and appear to be poised for continued strength heading into 2025.
But what’s behind this recent success, and what makes Netflix so irresistible? The answer lies in a combination of bullish fundamentals and a positive outlook.
Netflix has significantly improved its fundamental performance, exceeding analyst expectations for its latest earnings report. This was their highest revenue ever, and one of their most profitable quarters. This momentum has continued into October, with news of their UK subsidiary achieving record revenue exceeding $2 billion in 2023.
Analysts haven’t missed this strong performance. Since the summer, they’ve been issuing bullish calls on Netflix shares. Evercore and Pivotal maintained Buy ratings in late August, with the latter setting a street-high price target of $900. Piper Sandler, TD Cowen, and JPMorgan Chase joined the chorus this week, reiterating their Buy ratings on Netflix shares. While their price targets weren’t as lofty as Pivotal’s, suggesting an upside of around 25%, they still exceeded the $727 closing price on Wednesday.
The bullish narrative hinges largely on Netflix’s impressive subscriber growth, exceeding expectations and on track to reach 370 million this year. Netflix’s strong market share position, seen by analysts as the leading dominant paid global streaming service, further fuels the optimism. The company’s growth in both average revenue per user and free cash flow are considered key tailwinds that will continue pushing the stock higher in the coming months. Evercore even went so far as to declare Netflix is in “the strongest position financially, fundamentally, and competitively” they’ve ever seen.
However, it’s not all smooth sailing. While most analysts are bullish, some have taken a more cautious approach. Earlier this week, Barclays downgraded their rating on Netflix shares to a rare Sell, stating that Netflix’s “premium valuation is predicated on revenue growth being at least in the low double-digit range, which in our view, will get increasingly difficult.” While Rosenblatt Securities and China Renaissance didn’t fully rate the stock as a Buy in their updates, they also refrained from downgrading it to a Sell, opting for a Neutral rating.
This cautious outlook is worth considering, but it’s important to note that these bearish calls are in the minority. According to MarketBeat’s analyst forecast tool, out of 36 analyst ratings on Netflix, only 7% rate it a Sell, while close to 70% rate it a Buy. Given the current market activity ahead of next week’s earnings report, Wall Street seems to have no reservations about continuing to invest in Netflix at these levels.
The future of Netflix remains bright, with a strong foundation built on robust fundamentals and a promising outlook. While some analysts remain cautious, the majority believe Netflix’s dominance in the streaming market and its impressive growth trajectory will continue to drive its stock higher.
