Shares of Netflix Inc. rallied Monday, to buck the selloff in the broader stock market, after Oppenheimer’s new analyst covering the streaming video giant spelled out reasons why it’s time for investors to jump back in.
climbed 2.3% in premarket trading, while futures
for S&P 500 index
fell 0.9%. It was the only component of SPDR Communication Services Select Sector exchange-traded fund
that was gaining ground ahead of the open.
Analyst Jason Helfstein assumed coverage of Netflix, and raised the rating to outperform from perform. He set a $325 price target on the stock, which implied about 35% upside from Friday’s closing price of $240.13.
Not only will the launch of a lower-priced ad-tier subscription plan attract some first-time subscribers, Helfstein believes there’s a larger opportunity to re-engage those who have previously discontinued service.
“Ad-tier launch should accelerate subscriber growth, drive ARPU [average revenue per user] and slow churn,” Helfstein wrote in a note to clients.
He also believes Netflix will command high cost per thousand (CPM) from advertisers, given that it sill has the highest viewership in the industry, and as streaming continues to take share from TV.
“[Netflix] attracts a significant audience for releases of marquee shows, comparable to awards shows and major sporting events, suggesting the company can sell ads at CPMs well above the normal TV average,” Helfstein wrote. “In addition, it could choose to release shows in conjunction with large advertisers’ product launches.”
He believes Netflix’s move to crack down on password sharing, its partnership with Microsoft Corp.
on the ad-supported subscription plan and the move into the gaming arena could offer further upside to results and the stock.
With Helfstein’s upgrade 14 of the 45 analysts surveyed by FactSet are bullish on Netflix, while 6 are bearish and 25 are neutral. At the end of 2021, 34 of 47 analysts were bullish, 4 were bearish and 9 were neutral. The average stock price target has fallen to $244.91 from $681.79 over the same time.
Meanwhile, Netflix’s stock has been on a tear in recent months, as better-than-expected second-quarter results reported in July helped fuel a rebound. That followed a hugely disappointing first-quarter report in April, in which the company said it lost subscribers for the first time since its infancy.
After plunging 72.4% year to date to a five-year closing low of $166.37 on May 11, the stock has soared 44.3% through Friday. In comparison, the communication services ETF has fallen 8.8% since May 11 and the S&P 500 has lost 1.6%.