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The Ratings Game: Netflix stock has ‘more ways to win’ next year, analyst says in upgrade


Netflix Inc. shares are on pace to shed nearly half their value over the course of 2022, and Wells Fargo analyst Steven Cahall says “the pieces were there” for that weak performance.

The streaming giant had to deal with increased competition and slowing content growth this year, factors that Cahall says weighed on its shares. But he has a rosier outlook as he looks ahead to 2023, which brings “more ways to win” for the company.

Cahall upgraded Netflix’s stock

to overweight from equal weight Friday, writing that the company has opportunities to outperform on its key performance indicators in the new year. “Content is clearly improving,” he noted, plus Netflix is cracking down on password sharing and has introduced a cheaper, ad-supported tier.

“We don’t see how AVOD isn’t anything other than incremental to subscribers,” Cahall wrote of Netflix’s advertising-based video on demand service. He rolled out a new model for the growth potential of this tier, noting that it could be accretive to average revenue per user by the second half of 2024 but accretive to overall revenue earlier than that.

See also: Netflix co-CEO Sarandos predicts revenue rebound in 2023

He added that “basically only GOOGL and META are large scale global ad platforms,” but there’s opportunity for Netflix in his view as it’s expected to roll out its advertising tier to more countries over time.

Cahall further wrote that “the U.S. entertainment scatter market is close to $10 billion annually and offers a low-hanging fruit to NFLX, especially as cord cutting increases.” Scatter ads refer to those purchased closer to the time of air, rather than upfront.

“It’s tough to see NFLX not becoming a major player in U.S. TV advertising over the next 2-3 years,” he concluded, as he bumped his price target on the stock up to $400 from $300 Friday.

Netflix closed Thursday at $310.26, down 49% on the year.

Separately, Cowen & Co.’s John Blackledge weighed in on Netflix as well, calling the stock his top large-cap pick for 2023.

“We view NFLX as the best ‘recession play’ in our coverage universe if macro conditions worsen, particularly as the ad tier is attractive for value conscious consumers,” he wrote.

Blackledge said that the ad tier could accelerate the addition of new members in 2023, while the crackdown on account sharing will “likely boost” revenue per member, depending on how Netflix is able to drive conversion of password sharers over to their own accounts.

Blackledge lifted his price target to $405 from $340 and has an outperform rating.

See more: Netflix will crack down on password sharing next year — here’s how it will work

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