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Netflix (NFLX) stock has had a phenomenal run, gaining around 56.8% year-to-date and an impressive 120.6% over the past 12 months. Further, the streaming giant’s strong Q3 earnings report indicates that this momentum could continue, pushing its stock price even higher.
Netflix stock surged 11% in Friday's trading following its solid Q3 financial performance. Its earnings per share (EPS) of $5.40 handily surpassed the Street’s forecast of $5.09. The company’s Q3 PS beat reflects solid growth in global paid memberships and average revenue per membership (ARM), key indicators of Netflix’s health and growth potential.
As Netflix continues to generate solid subscriber growth and ARM, at least one Wall Street analyst expects Netflix stock to reach $900, which is the current Street-high price target. Let’s break down why that target might be within reach.
What’s Fueling Netflix’s Growth?
Netflix’s ability to deliver such strong results, even amid challenging year-over-year comparisons, shows its resilience and strategic positioning in the streaming space. The company has successfully increased both its subscriber base and ARM, thanks to pricing adjustments and a growing advertising business.
Netflix forecasts 15% revenue growth for Q4 2024, with expectations of higher paid net additions due to seasonal factors and a robust content lineup. The company also projects a Q4 operating margin of 22%, up about 5% year-over-year. For the full year, Netflix expects revenue growth to reach the high end of its 14%-15% target, with an operating margin of 27%, up 6% from 2023.
The momentum will likely continue into 2025, as well. Netflix is targeting revenues between $43 billion and $44 billion, which would represent 11%-13% growth over its 2024 forecast of $38.9 billion. Subscriber growth, combined with rising ARM, will be key drivers. Netflix also aims for a 2025 operating margin of 28%, up 100 basis points from its anticipated 27% in 2024.
By balancing margin expansion with strategic investments - such as in content, advertising, and gaming - the company aims to maintain its dominant position in the streaming industry, while continuing to deliver solid financial returns.
Engagement and Content Keep Netflix Ahead
Netflix’s strategy of investing heavily in diverse content - ranging from blockbuster series to original films - continues to pay off in terms of engagement and user retention. On average, users spend about two hours a day on the platform, showing that Netflix remains a favorite in the streaming world, despite competition and the implementation of paid sharing.
While cracking down on password sharing did reduce viewership on shared accounts, it also encouraged sharers to subscribe, converting more users into paying customers. Interestingly, viewing hours for paying households increased year-over-year in the first three quarters of 2024, when excluding shared accounts.
Netflix’s vast library of content, combined with newer offerings like games and live events, gives it a competitive edge. Unlike some competitors that bundle services, Netflix keeps its pricing simple, offering a comprehensive entertainment experience in one place at a great value.
Netflix’s Solid Monetization and Ads Strategy
Netflix’s monetization strategy is evolving. By offering a range of pricing plans, including its ad-supported tier, Netflix is appealing to a broad consumer base while gradually increasing prices in select markets.
The company’s advertising business is gaining traction, with its ad-supported plan accounting for over 50% of sign-ups in Q3. Membership in this plan grew by 35% quarter over quarter, putting Netflix on track to hit a key level in 2025, after which it expects even higher ad revenues in the following years.
Engagement on the ad-supported plan is also strong, with viewing hours comparable to the standard plan in the 12 countries where it is offered. As Netflix continues to improve its ad offerings, its revenue growth from advertising is set to accelerate, further boosting the company’s overall financial performance.
Conclusion: Netflix's Path to $900
With strong subscriber growth, a robust content strategy, and a fast-growing ad business, Netflix appears well-positioned to continue its upward trajectory. As the company enhances its core offerings while investing in new revenue streams like gaming and advertising, the path to $900 per share seems possible.
Wall Street recommends a “Moderate Buy” consensus rating on NFLX.
However, given the company’s solid financial performance and growth prospects, analysts could soon turn more bullish on NFLX stock.
On the date of publication, Amit Singh 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.
