Netflix Stock Jumps To 9-Month High, Wall Street Cheers Q4 Subscriber Wins, Smoothly Executed Succession Strategy
Netflix stock The company closed the week at its best level since April last year, climbing more than 88% Friday to close at $342.50. This was after it reported strong subscriber growth and completed a smooth handoff at the top of its executive ranks.
Netflix stock has been a darling of investors for the past two decades of public trading and has risen 15% in the first 2023.
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The catalyst for today’s upswing, which came amid nearly triple the stock’s normal trading volume, was Thursday’s fourth-quarter earnings report. The company said it added almost 7.7 million global subscribers in the period, reaching 230.75 million, far exceeding analysts’ consensus forecast. Other than the subscriber count, the results were mixed. Revenue rose just 2%, while earnings per share missed estimates by a significant margin. The company is growing again and it also announced in its earnings release that cofounder Reed Hastings Greg Peters, a long-serving executive, has been appointed Co-CEO. He shares the title with Ted Sarandos. Hastings now serves as executive chairman.
Many Wall Street After the earnings announcements and comments from executives, analysts raised their price targets. Investors reacted almost in the exact opposite way to the two poor quarterly reports that were released early in 2022.
“Netflix represents a frankly unique tech growth story and remains well positioned to generate solid subscriber and revenue/free cash flow growth even given the reasonably high chance of a global recessionary environment,” wrote Pivotal Research’s Jeffrey Wlodarczak in a note to clients. As far as the change in leadership, “We don’t love that Reed H. is stepping back to a more strategic role,” but he added that the shift supports Pivotal’s thesis that the company could be building toward a sale by 2025. (Microsoft, which is already Netflix’s advertising partner, is a leading candidate for a takeover, per Wlodarczak.)
For Michael Morris and his colleagues at Guggenheim, “We see Peters as offering complementary skill set to incumbent co-CEO Ted Sarandos.” The firm reiterated its “buy” rating on the stock, boosting its 12-month price target to $375 from $305.
Jessica Reif Ehrlich of Bank of America, who was the analyst chosen to moderate Netflix’s quarterly earnings interview on Thursday, followed with a note reaffirming her “buy” rating and upping her price target to $410 from $375. She highlighted positives such as subscriber momentum and guidance by management towards $3 billion in free cashflow in 2023. This is well beyond her previous expectations. She sees the changing of the executive staff as a non-factor. “Netflix appears to have been planning for this succession for several years and we do not expect this leadership transition will disrupt the company’s strategic direction or execution,” she wrote.
Not everybody viewed Thursday’s results through Red Notice-tinted glasses. MoffettNathanson’s Michael Nathanson continues to rate the stock “market perform,” or neutral. In a note to clients, he acknowledged that it seems that “the good vibes are back” after a rocky period. But he cautioned in a note to clients that the stock “has run too far and too fast given the fundamentals.”
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