Netflix (NFLX) has really made a name for itself in the streaming world, proving the doubters wrong and becoming a must-watch stock in September 2024. While Netflix isn't officially one of the "Magnificent Seven" tech giants, the mega-cap tech giant is a leader in its own right. And with its stock price up an impressive 39.6% this year, NFLX is outperforming all but two members of the official Mag 7 lineup - namely, Nvidia (NVDA) and Meta Platforms (META) - following a volatile summer for tech stocks.
Analysts see more upside in store, too. Recently, Pivotal Research reiterated its Buy rating and raised its price target from $800 to $900, citing Netflix's ability to leverage its scale and continue growing its subscriber base. Similarly, Evercore raised its price target to $750, emphasizing Netflix's strong market position and potential for future growth.
So, why is Netflix such a hot ticket right now? Let's dive into what's making it tick, where it stands in the market, and why the experts think it's got room to run.
Netflix's Current Market Position
Netflix's journey to dominance in the world of streaming is backed up by some fairly staggering numbers. In its Q2 2024 earnings report, Netflix beat Wall Street's expectations across the board. The company reported revenue of $9.56 billion for the second quarter, up 17% from the previous year. This was accompanied by a significant increase in net income, which surged 44% to $2.15 billion. Diluted earnings per share (EPS) of $4.88 surpassed the anticipated $4.74.
But the real showstopper was Netflix's subscriber growth. The company added 8.1 million new subscribers in the quarter, bringing its global total to 278 million. This 16.5% increase in subscribers is a clear sign that Netflix's strategy of cracking down on password sharing and introducing a lower-cost ad-supported tier is paying off. Popular original content like "Bridgerton S3" and "Under Paris" have captured viewer engagement globally, also driving this impressive growth.
The stock's performance is echoing this financial success, with Netflix shares up nearly 40% so far this year. In the past month alone, the stock jumped 10.7%, while the broader S&P 500 communications sector has been slightly negative, and the S&P 500 Index ($SPX) rose by 3.3%. This relative strength reflects investors' confidence in Netflix's strategies and growth potential.
When it comes to valuation, Netflix definitely stands out in the streaming sector. Its forward Price-to-Earnings (P/E) ratio is 35.32, well above the sector median of 13.49. Similarly, its Price-to-Sales (P/S) ratio of 7.49 far surpasses the sector median of 1.28. These numbers indicate that investors are pricing in strong future earnings growth for NFLX.
The Factors Fueling Netflix's Continued Success
Netflix is making some big moves, and I'm not just talking about its latest shows in production - the streamer is looking to become a destination for live sports and events, too.
One standout deal is with WWE, where Netflix will become the exclusive home for "Monday Night Raw" starting in January 2025. This $5 billion, 10-year agreement marks the first time "Raw" won't air on traditional TV networks. By hosting this flagship wrestling show, Netflix aims to tap into WWE's massive fanbase, offering live sports entertainment to viewers worldwide.
In addition to the WWE partnership, Netflix is diving into live sports with a groundbreaking three-year deal to broadcast NFL games. Starting on Christmas Day 2024, Netflix will air two major NFL matchups, and plans to continue hosting at least one game on Christmas in 2025 and 2026, as well. This marks Netflix's first step into live football, a strategic move to diversify its content and attract advertisers. The NFL deal is expected to draw millions of holiday viewers, providing a lucrative opportunity for Netflix to boost its advertising revenue.
And for basketball fans, Netflix is creating a new series called "Starting 5." It will follow five of the biggest stars in the NBA for a behind-the-scenes look at the 2023-2024 season. The series will premiere on Oct. 9, so mark your calendars if you're into hoops.
All in all, Netflix is branching out big time, trying to become your go-to place for all kinds of entertainment - well beyond your favorite true crime docs and slightly dated movies.
NFLX: The Analyst Consensus and Price Targets
As Netflix gears up for its upcoming earnings release on Oct. 16, analysts are expecting EPS of $5.07, with expected revenue growth of 14% YoY, and a forecasted operating margin of 28.1%.
The consensus rating on Wall Street for NFLX is a "Moderate Buy," with only about 2.3% upside to the mean price target of $695.91 - though, as noted previously, analysts have been raising their price targets recently. Plus, there's still potential 17.7% upside to the Street-high target of $800.
Out of 39 analysts, 21 recommend a “Strong Buy,” two suggest a “Moderate Buy,” 15 advise a “Hold," and one suggests a “Strong Sell.”
Adding to the optimistic sentiment, Evercore ISI said a recent survey confirmed Netflix's standing in the streaming industry "remains as strong or stronger than ever." The firm's newly raised price target reflects the belief that Netflix's innovative content strategies and expanding subscriber base will continue to drive growth and profitability.
Conclusion
Netflix's impressive financial performance, strategic partnerships, and optimistic analyst outlook make it a compelling choice for investors this September. With strong earnings estimates, newly raised price targets, and winning strategies to build its subscriber base, Netflix is well-positioned to continue its upward trajectory. As the streaming giant expands its content offerings and adapts to market changes, it remains a formidable player in the industry, and a mega-cap stock worth considering this September.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
