Netflix Has Best Week Since 2022 On Stunning Subscriber Jump

(Bloomberg) -- A better-than-expected earnings report lifted shares of Netflix, Inc. to its best weekly performance in more than a year. 

Netflix rose 1.5% to close at $570.42 Friday, pushing weekly gains to 18%, the streaming giant’s strongest week since October 2022. The stock is now trading at its highest level in more than two years. 

The weekly performance adds to a positive start to the year for Netflix after a volatile 2023, when pressure from dual strikes in Hollywood hurt its shares. Following the strikes, Netflix reported solid earnings in back-to-back quarters, stoking optimism. Now, it’s the top performer on the S&P 500 Index for the week.  

“The recent growth has been extraordinary,” said Robert Conzo, chief executive officer of The Wealth Alliance. “Netflix seems to continue to outperform, and keep investors coming to the table.” 

In the final quarter of 2023, a jump in subscribers further solidified that Netflix’s recent price hikes, password crackdown and advertising-subsidized tier are working. Ahead of earnings, the company also announced it had bought the exclusive rights to and other programming from World Wrestling Entertainment, the streamer’s biggest move yet into live events. 

Read more: Netflix Soars on Biggest Spike in New Subscribers Since Pandemic

David Klink, senior equity analyst at Huntington Private Bank, acknowledged that the company’s efforts to boost subscriptions went better than analysts expected. “Netflix was right, we were wrong,” he said.

Meanwhile, its peers are struggling. Warner Bros. Discovery, Inc. and Paramount Global are each down more than 6% this year. Walt Disney Co. has gained 5.6% but lags Netflix’s 17% gain. “Everyone is gathering behind the industry leader,” Klink said. 

Analysts have taken note. Argus Research Co. and Citigroup Global Markets Inc. have boosted their price targets for shares, while analysts at Macquarie Group Ltd. and DZ Bank AG upgraded Netflix to buy-equivalent ratings.

In a note, Maquarie analyst Timothy Nollen wrote that he had been “waiting for confirmation that Netflix’s moves were paying off. We have that now.” He also boosted his Netflix price target to $595 from $410. 

Buzz on the Street

Yet while Wall Street is bullish on Netflix, it doesn’t see much upside for shares. 

Though 65% of analysts covering the streamer give it a buy rating, the average price target is about $570 — slightly below where shares closed Friday, according to data compiled by Bloomberg. While Netflix shares are up 65% from their October trough, the rally could slow once growth stabilizes. (Netflix is still about 18% below its 2021 high.) 

Netflix currently trades at a premium to both its streaming peers and the broader market at 32 times forward earnings. The Nasdaq 100 Index trades at about 25 times forward earnings, and the S&P 500 Index’s price to earnings ratio is about 20. “That can cause some investors to pause and really look at where this is going in the future,” Conzo said.

Still, he added that investors have demonstrated of late that they’re not afraid to pay a premium for companies that show growth, pointing to the Magnificent Seven technology stocks. The group trades at about 28 times forward earnings. 

“Investors continue to shrug it off and keep moving on,” he said. 

(Updates stock moves at market close)

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