Financial analysts at Jefferies said Thursday they remain bullish on Netflix (NASDAQ:) stock. Their optimism is based on the belief that the introduction of advertising, increased subscription prices and the company’s efforts to prevent the sharing of account passwords will support a steady annual revenue growth rate of between 10% and 15% in the next few years.
Analysts say discontinuing the practice of reporting subscriber numbers will be beneficial to NFLX. They argue that this will refocus investors’ attention on the company’s strong annual revenue growth rate, which is expected to be between 10% and 15%, and this will be more significant than any near-term change in the number of subscribers.
“We see the 2025 revenue forecast as a positive for NFLX stock. The current market expectation is for growth of around 12% (compared to 13-15% in fiscal 2024), which seems too much We think so because we expect advertising revenue to become a larger part of the company’s profits, further price increases are likely, and the addition of content and live events could attract new subscribers and increase user engagement.” the analysts wrote in their report.
Furthermore, Jefferies predicts that Netflix’s measures to impose restrictions on password sharing will lead to an increase in the number of subscribers in 2024 and 2025. This is expected despite the company’s decision to no longer make the number of its subscribers public .
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Netflix is expected to gain more than 6 million new subscribers in the US and Canada (UCAN) region in 2024 and another 3.1 million in 2025, benefiting from its advertising-included tier.
Confidence in the prospects of Netflix’s advertising sector is also growing, underlined by an increase in the number of active monthly users on the advertising tier and a situation in which the availability of advertising space exceeds demand.
Analysts estimate that Netflix’s advertising revenue could exceed $5.5 billion in the next few years, potentially representing 10% to 15% of Netflix’s total revenue. This calculation takes into account Netflix’s 8% share of total viewing hours in the United States.
Looking at the long-term outlook, Jefferies predicts that Netflix’s free cash flow (FCF) could double and earnings per share (EPS) could triple over the next five years.
“Our long-term analysis suggests that the share value could increase by more than 15%. This is based on an expected annual revenue growth rate of more than 10% for the next five years, a higher free cash flow margin at 25% (compared to 18% in fiscal 2024) and a multiple of 22x free cash flow,” the company said.
Jefferies continued to recommend buying NFLX shares, but reduced its price target from $700 to $655.
NFLX shares rose 2.4% on Thursday.
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