According to Jefferies, Netflix should offer investors some reassurance after a looming recession as the company cracks down on password sharing. The company upgraded shares of the streaming platform to “buy from hold” and raised its price target to $385 from $310, implying more than 17% upside potential for the stock. Netflix shares are up more than 1% in premarket trading after the upgrade. “We are upgrading Netflix to Buy based on our belief that a well-executed strategy is go-to-market [advertising-based video on demand] Changes in password sharing will drive revenue and adjusted EBTIDA will be well above Street’s estimates, causing margin to increase and valuation to climb back towards historical averages,” analyst Andrew Uerkwitz wrote in a note Thursday. Jefferies estimates that there are around 100 million households that steal passwords and another around 80 million that share a login. Those who share passwords are more likely to retain their Netflix membership, while borrowers must decide whether to stay or leave — Jefferies estimates retention will be 50% by the end of 2023 and will grow to 67% by 2024. They also expect that members who use ad-based video-on-demand and subscription video-on-demand options at Netflix will contribute $6 billion to $7 billion in revenue by 2024. Of course, in the short term, Uerkwitz sees pressure for Netflix in the first half of 2023 with a stronger back half in 2024. For that reason, investors buying in now should expect patience, he said. Jefferies estimates for adjusted EBIDTA are about 3% below Street consensus in 2023, but about 27% ahead of consensus in 2024. Overall, Jefferies believes Netflix will prove to be a consumer staple as it evolves finds its way in a changing business landscape due to economic weakness. The future management team will demonstrate discipline on content spend and margin expansion, putting it back on track to continually grow operating margins and free cash flow. According to the notice, Netflix should also be able to weather unsustainable content spending from competitors. The biggest risk for Netflix is ”that ads and stricter anti-sharing policies go against the company’s long-standing developer ethos of being consumer-friendly,” Uerkwitz said. “Reputational damage is very difficult to reverse.” Netflix stock has had a terrible year, losing 51% in 2022. However, Uerkwitz said, “With a possible looming recession, we are looking for safety and names where there is less downside risk.” – CNBC’s Michael Bloom contributed to the coverage.
https://www.cnbc.com/2023/01/12/jefferies-upgrades-netflix-as-streaming-giant-cracks-down-on-password-sharing.html Jefferies is gearing up for Netflix as the streaming giant cracks down on password sharing