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Pivotal Research — frequently one of the biggest cheerleaders for Netflix (NASDAQ:NFLX) — is still bullish, and it still sees a “unique” tech growth story that also features the whiff of a potential blockbuster sale of the company.
The firm’s take gets a boost from Friday’s findings that Netflix may be seeing a big subscriber boost from its plan to crack down on password sharing via its extra-members initiative. (Netflix saw nearly 100,000 sign-ups per day in the days after bringing its Paid Sharing project to the United States, according to Antenna.)
The streaming pioneer is in its unique spot “given it remains well positioned to generate solid subscriber and revenue/free cash flow growth even in a potential global recessionary environment via their better monetization of the approximate 100M-plus households that currently utilize NFLX outside of paying households via password sharing,” analyst Jeffrey Wlodarczak said.
That should only be enhanced by the subscriber and monetization benefits from the company’s relatively new advertising-supported service tier, he added. And unlike its streaming peers, Netflix has demonstrated “massive scale economies,” he said, pointing to the major ramp in free cash flow in 2022-23 (a trend he expects to continue in 2024).
As for the much-discussed subject of Netflix ever selling to a bigger tech-focused company: “Recall our view … that after a strong ’23 and ’24, NFLX management may look to sell the company in ’25” — with Microsoft (MSFT) shaping up as the most logical acquirer, “assuming a more favorable administration to consolidation,” he said.
He’s expecting the company can deliver compound annual growth in earnings before interest, taxes, depreciation and amortization of 20% through 2027 — and CAGR of 50% in free cash flow over that span — despite trading at an attractive multiple “for the world’s clearly dominant streaming video player.”
And he’s boosted the firm’s price target to a Street-high $535, implying 27% upside by the end of 2023.
Pivotal is no stranger to holding Wall Street’s highest target on Netflix, having topped that list several times in recent years. In October, it reversed course on a Sell rating, double-upgrading to Buy and establishing the then-high target of $375.
More on Netflix’s password crackdown
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