While Netflix looks to be ending a brutal year on a more upbeat note, most analysts are predicting continued tough sledding for Netflix and its streaming rivals through at least the first half of 2023.
Netflix saw its stock price jump 5.1% on Thursday, outpacing a 2.5% gain for the Nasdaq as a whole, after CFRA Research analyst Kenneth Leon upgraded the shares from sell to buy and increased his price target for the stock from $225 to $310 per share.
Leon cited many of the arguments made by Netflix itself, starting with the pioneering company’s global profitability, in contrast to major competitors. While Amazon’s Prime Video and Disney+ and others are growing their audiences rapidly, they are all losing money, “with combined 2022 operating losses well over $10 billion, vs. Netflix’s $5 [billion] to $6 billon annual operating profit,” he pointed out.
Leon also cited the revenue potential of Netflix’s new ad-supported tier; its plan to boost revenue further by cracking down on account sharing in earnest in 2023; and the acquisition and retention power of its strong original content lineup, including “Emily in Paris” and the "Knives Out" movie franchise. In addition, he said he considers Netflix's refusal to compete for costly sports franchise streaming rights, which could prove to be loss leaders, in contrast to Amazon and others.
But while Netflix’s shares actually have seen significant recovery over the past six months, it is still down more than 50% for the year, and its market cap has dropped by half, to about $123 billion.
Analysts’ consensus projections for Netflix call for 7% revenue growth and 14.2% net income growth in 2023, but that would not result in a $400 per-share price — and its price was well above $400 for most of the trailing three-year period, points out Motley Fool’s Neil Patel.
As of Thursday, 17 of 32 analysts covering this sector were still rating the stock as “hold” or worse, versus 15 calling it a strong buy, according to Fernanda Horner, digital content manager, Schaeffer's Research.
The skeptical outlook extends to the streaming business (and the tech sector) as a whole, given the intensified competition, consumer pullbacks on paid subscriptions as inflation lingers, and advertising cutbacks in the face of concerns about the economy.
Warner Bros. Discovery’s stock is down more than 60% and Disney’s is down more than 45% as the year closes, with both companies’ prices hitting 52-week lows in recent days.
Despite gains later this year, Netflix’s rare subscriber losses in early 2022 triggered a shift in focus, with investors and analysts now scrutinizing streamers’ costs and bottom lines, rather than just subscriber growth stats.
“I think everyone was trying to emulate Netflix with the hope of seeing a similar valuation, and at this point the jig is up,” UBS analyst John Hodulik told CNBC. “Netflix is no longer being valued at a revenue multiple. Investors are asking how direct-to-consumer gets to profitability.”