Netflix (NFLX) stock closed at a record high just above $772 on Monday as the streamer continued to ride positive momentum from its better-than-expected quarterly results last week.
Netflix beat across every major financial metric in its third quarter results last week and projected sales for the current quarter that came in ahead of Wall Street’s expectations. On Friday, the streaming giant notched a previous record close of just below $764.
“In our view, Netflix remains one of the best positioned companies within media and has several growth drivers,” Bank of America analyst Jessica Reif Ehrlich wrote in a note following the report, citing the company’s booming advertising tier, along with its initiatives in gaming, sports, and live events.
The analyst reiterated her Buy rating on shares and raised her price target to $800 from the prior $740.
But with the stock up nearly 60% since the start of the year, its high valuation has caused some concerns.
Too good to be true?
Investors have rewarded Netflix for diversifying its revenue streams, with its ad tier now accounting for over 50% of sign-ups in the countries where it’s offered.
The company’s top-line growth has not only benefited from ads but also from the streamer’s crackdown on password sharing, which analysts say is almost complete. The completion of the crackdown should lead to fewer subscribers compared to previous quarters, with future price hikes likely to offset the slowdown.
“Revenue growth in 2025 and beyond should continue to be a function of slower subscriber growth and a return to a more normal pricing cadence as the company has largely made its way through the [password-sharing crackdown],” Deutsche Bank analyst Bryan Kraft said on Friday.
Wall Street analysts have noted a price hike would be a positive catalyst for the stock in the near term, citing the company’s pricing power relative to competitors.
“Given Netflix’s low cost per viewed hour, we see scope for the firm to raise US prices by 12% in 2025,” Citi analyst Jason Bazinet said in a note ahead of the report.
Netflix co-CEO Greg Peters said the company will continue to “evolve” the pricing of its tiers, but that it “love[s] the low price point and increased accessibility that comes with our ad plan,” which costs $6.99 in the US.
Still, Netflix recently revealed year-over-year engagement levels came in roughly flat — a potential headwind when it comes to its ability to raise prices.
“With much of the subscriber growth seemingly representing improved monetization of an existing (and not growing) user base, we question whether the momentum can continue into next year,” MoffettNathanson analyst Robert Fishman wrote in a note to clients following the report. “Netflix’s stock is massively expensive for a company whose own guidance implies a revenue deceleration into 2025.” Last week, Netflix said its revenue growth is expected to slow from an expected 15% this year to between 11% to 13% in 2025.
Fishman maintained his Neutral rating on shares. He sees the stock falling to $670 by year-end.
“Ultimately, we all know that Netflix is the winner of the streaming wars,” Fishman continued. “It has a bright future as king of premium, long-form media. Yet, the market has priced Netflix’s stock as if it is poised to be even more than that, and that leaves us on the sidelines scratching our heads.”
Netflix last raised the price of its Standard plan in January 2022, upping the monthly cost to $15.49 from $13.99. It also raised the price of its Premium tier by $2 to $19.99 a month at the same time; the company again raised the cost of that plan last October to $22.99.
Netflix recently phased out its lowest-priced ad-free streaming plan, making the $15.49 Standard plan its cheapest offering for an ad-free experience.
Netflix has yet to raise the price of its ad-supported offering, introduced less than two years ago, which remains one of the cheapest ad plans among all of the major streaming players at $6.99 a month.
“A price increase is long overdue and that’s really what investors are looking for,” Bloomberg Intelligence analyst Geetha Ranganathan told Yahoo Finance’s Market Domination following the earnings report.
“If you look at the big picture, the valuation of the stock is at a premium [and] revenue growth is what underpins that lofty valuation,” she said. “For you to have consistent revenue you need those price increases.”
Ultimately, though, Ranganathan said it’s hard to see others catching up: “Netflix has won the streaming wars, undoubtedly.”
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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