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Netflix Stock Are Better Times Ahead

Netflix stock is soaring after the streaming giant unveiled a big Q3 earnings beat and plans to crackdown on password sharing. (opens in new tab) (opens in new tab) (opens in new tab) Newsletter sign up Newsletter (Image credit: Getty Images) By Dan Burrows last updated 21 October 2022 It appears that reports of Netflix's (NFLX (opens in new tab), $275.13) demise were greatly exaggerated. Netflix stock gapped up more than 15% in early Wednesday's trading after the streaming leader easily topped both Wall Street's and its own forecast for subscriber growth.

Technical Analysis Says This Stock Market Rally Has Legs The market pretty much always overreacts, both to the upside and downside, in the immediate aftermath of news events like earnings. But there's no doubt Hollywood is breathing a huge sigh of relief on the subscriber news – to say nothing of long-suffering Netflix shareholders.

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Profit and prosper with the best of Kiplinger's expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail. Profit and prosper with the best of Kiplinger's expert advice - straight to your e-mail. Sign up NFLX has always been an exceedingly volatile stock, but the current drawdown has been longer and steeper than most. Shares hit a closing peak of $691.69 on Nov. 17, 2021 and had lost 65% of their value before Wednesday's rally. The fact that Netflix stock traded essentially sideways since its disastrous April earnings release – the one in which the company disclosed its first loss of subscribers in a decade – leaves open the possibility that this latest report could be just the catalyst the stock needs to start grinding higher again. At least that's what the NFLX bulls contend. They're pinning their hopes on the company's launch of a lower priced, ad-supported tier of service and a crackdown on password sharing.

What the Pros Are Saying

Deutsche Bank analyst Bryan Kraft, for one, upgraded Netflix to Buy from Hold, and raised his price target to $350, in response to the quarterly results.

For Stocks, the Midterms May Not Matter. Here's Why That's A Good Thing. "We believe we now have visibility into a subscriber growth inflection point next year given that Netflix management has confirmed both the early 2023 introduction of its new measures designed to better monetize account sharing, and the early November timing of its AVOD tier launch in 12 top markets," writes Kraft in a note to clients. "The 100 million 'account borrowers' Netflix has counted represent a clear and present growth opportunity that Netflix will soon be in a position to exploit." Other analysts, while encouraged by management's initiatives, were less impressed, and remain concerned about intense industry competition and looming recession next year. "While investor optimism is built with respect to the ad supported tier (correlated with the recent stock outperformance in the run-up to Q3 earnings), we still see an elevated competitive industry level against a post-pandemic backdrop while a potential for a weaker consumer spending dynamic remains into 2023," writes Goldman Sachs analyst Eric Sheridan, who slaps a rare Sell recommendation on the stock. Splitting the difference is Raymond James analyst Andrew Marok, who, like most of the Street, rates Netflix stock at Market Perform (the equivalent of Hold). "This quarter's report goes a long way toward calming fears spurred by first-half 2022 subscriber declines," notes Marok. "While we still have some reservations around the scaling of new monetization initiatives and the competitive environment, the path to upside looks more feasible now than three months ago."

Why Domino's Pizza and Delta Air Lines Hint at a Stronger Economy As noted, Raymond James is very much in the majority on the Street. Of the 42 analysts issuing opinions on NFLX tracked by S&P Global Market Intelligence, 22 call it a Hold. Of the remaining analysts, 14 rate it at Strong Buy, one says Buy, three call it a Sell and two have it at Strong Sell. That works out to a consensus recommendation of Buy, albeit with mixed conviction. And we'll have to wait and see how NFLX recommendations shake out over the next few days. After Wednesday's rally, Netflix stock shot past the Street's average target price of $261.33. As for the valuation, the stock does appear compellingly priced on a forward earnings basis. Shares in Netflix change hands at less than 24 times analysts' 2023 earnings per share (EPS) estimate. That's not a bad price to pay for a company expected to generate average annual EPS growth of 24% over the next three to five years. Valuation, however, only tends to work its magic over the longer term. If you go by the wisdom of the analyst crowd, the outlook for Netflix over the next 12 to 18 months is something of a coin flip.

The Bottom Line

The good news is that the bottom for Netflix stock looks to be solidly in the rearview mirror. Whether shares can get back to their market-beating ways over the intermediate term remains to be seen. That said, Netflix is armed with a credible plan to reinvigorate growth, and some early results to back it up. If nothing else, the outlook for NFLX stock hasn't been this bright in a while.

Can Stocks Picked by Artificial Intelligence Beat the Market? 3 Stocks to Watch Explore More Netflix (NFLX) Dan BurrowsSenior Investing Writer, Kiplinger.comDan Burrows is a financial writer at Kiplinger, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts. Latest 4 Ways You Can Take Advantage of a Down Market With markets down for the year, it may seem that all the news is bad. But now could be a good time to make some profitable moves. By Adam Grealish • Published 11 November 22 New, Used or Leased: Is Now the Time to Buy an Electric Vehicle? The Inflation Reduction Act created new tax breaks for electric vehicles. Here's a guide to which EVs count and the best time to buy. By Rivan V. Stinson • Published 11 November 22 You might also like Stock Market Today: Stocks Fall as Bond Yields Climb Not all stocks were lower, though. Netflix, Procter & Gamble and United Airlines were all up after earnings. By Karee Venema • Published 19 October 22 Stock Market Today: Stocks Sprint Higher as Bank Earnings Impress Bank of America and Bank of New York Mellon both reported Q3 earnings beats. By Karee Venema • Published 17 October 22 Stock Market Today: Stocks Resume Slide as Treasury Yields Rise Stock Market Today Signs of strength in the U.S. economy did little to lift investor sentiment on Thursday. By Karee Venema • Published 15 September 22 Stock Market Today: Dow Sinks 1,276 Points After Alarming CPI Report Stock Market Today Hope that inflation might have peaked was dashed with this morning's CPI report, sending stocks to their worst day since June 2020. By Karee Venema • Published 13 September 22 Stock Market Today: Stocks Snap Weekly Losing Streak Stock Market Today Energy was one of the best-performing sectors today as oil prices rebounded. By Karee Venema • Published 9 September 22 Stock Market Today: Rising-Rate Fears Keep Stocks in the Red Stock Market Today Stocks turned lower after ISM data showed continued strength in the U.S. economy, with the Nasdaq notching its seventh straight loss. By Karee Venema • Published 6 September 22 Stock Market Today: Markets End Lower Again as Tech Stocks Drag Stock Market Today The effects of Fed Chair Powell's hawkish Jackson Hole speech lingered Monday, but stocks finished off their session lows. By Karee Venema • Published 29 August 22 Stock Market Today: Nasdaq Zips Higher as Netflix Earnings Impress Stock Market Today The latest housing data showed existing home sales fell again in June as home prices kept rising. By Karee Venema • Published 20 July 22 View More ▸ kiplinger About Us (opens in new tab) Terms and Conditions (opens in new tab) Privacy Policy (opens in new tab) Cookie Policy (opens in new tab) Kiplinger is part of Future plc, an international media group and leading digital publisher. Visit our corporate site.
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