At 1pm Pacific on Tuesday, April 18, just as the 2023 NAB Show begins its three-day wind-down, Netflix will release its first quarter 2023 financial results.
SVB Moffett Nathanson Senior Analyst Michael Nathanson will be looking intently at the fiscal health report, as he believes Netflix is in the midst of “two significant changes to their revenue model at a time of dramatic change to the streaming landscape.”
In a perfect world, Nathanson believes, there would be enough company disclosure and publicly available information to produce a Netflix model that delivers a high degree of long-term confidence. “Unfortunately, that isn’t the case right now,” Nathanson laments. “As such, the stock has become a story stock driven by dueling bull-bear convictions.”
With the close of trading Wednesday on the Nasdaq market, NFLX was up $8.85, or 3%, to $303.79 per share.
Now armed with full-year details as submitted in its 2022 10-K filing, SVB MoffettNathanson is raising its post 2023 operating margins and earnings estimates for Netflix.
The good news for investors: SVB MoffettNathanson is also raising its price target by $65, to $315.
“We believe that the ratio of cash content spending to amortization should be quickly narrowing in the coming years while the clampdown on password sharing should have a material positive impact on core subscription revenues and serve as a possible impetus for the nascent ad tier,” Nathanson writes. “Given the slowing of industry content spend, Netflix should be able to get better relative leverage from their own spending which now might include more acquired content. [U]nlike a glass onion, the current changes to the operating model will be perfectly opaque. Yet, our analysis suggests that the combination of inputs is now more favorable to the model than we had previously assumed.”
While Wednesday excitement has started to cool as subscribers have completed Season I, the final installments of the hugely popular Stranger Things have yet to debut. Meanwhile, the second season of cult favorite Sweet Tooth is due in April.
The $315 price target represents a 16.9x 2025E P/E multiple, or a +20% premium to the market multiple.
