Netflix — NFLX-Nasdaq Outperform — Price $490.20 on Jan. 23 by Evercore We reiterate our Outperform on Netflix and raise our price target to $600 from $500 in the wake of fourth-quarter earnings-per-share results that were materially better than high expectations.
There were several key positives — much stronger than expected fourth-quarter subscription additions (13 million, the second highest ever for Netflix, after the March 2020 Covid quarter); a record-high fourth-quarter 17% operating margin; and free cash flow that came in materially higher than expected. The first-quarter subscription outlook commentary was very vague, but the outlook for accelerating revenue growth wasn’t — 13% in the fourth quarter to 16% in the first quarter to “healthy double-digit revenue growth” for the full year.
We attribute the very strong top-line performance to several factors: 1) a reasonably strong content slate across film and TV, 2) increased contribution from SAVOD [subscription and ad-supported video on demand], and 3) ongoing contribution from the company’s paid sharing initiatives.
While our revenue estimates increase only 1%-2%, our operating income and EPS estimates rise 7%-9%, with ’25 EPS rising from $20.45 to $22.38. Our ’24 subscription adds estimate goes from 15 million to 18 million Our $600 price target is based on 27 times our ’25 EPS of $22.38 and 22 times our ’25 Ebitda of $12.2 billion.