Netflix Can Soar Higher In The 2nd Half

Key Points

• Netflix increases on a round of analysts' upgrades and price target increases. 
• The company could outperform with Q2 results and guide higher for the 2nd half. 
• Institutions are buying the stock and helping to support the market. 

Netflix NASDAQ: NFLX made some big changes over the last year, but the signs are good that those changes are working for the better. The combination of password-sharing initiatives and paid-subscriptions tiers has allowed the company to return to growth both in user count and operating metrics.

The analysts have taken note of the changes and see them driving results this year and next. They are raising their estimates for earnings and targets for the stock, which is leading the market higher. Headwinds and hurdles aside, Netflix could gain another 15% to 25%, and that is without a solid report for Q2. The Q2 report is expected to be solid and lead to another round of analyst upgrades. 

Netflix is 1 of Marketbeat.com’s Most Upgraded Stocks and has been on the list all year. The position is slipping but may regain traction after the Q2 release, which is expected later this month. Until then, Marketbeat is tracking 21 updates from 37 analysts who have the stock pegged at Moderate Buy. The sentiment is trending higher compared to last year due to recent upgrades, as is the price target. The price target of $387 assumes the stock is overvalued at $445 but is up sharply compared to last year and well below the recent activity. 

Recent activity includes 12 price target increases since the first week of June, including 1 upgrade. The upgrade is to Neutral from Underperform from Goldman Sachs, which cited positive operating performance. They upped their target to $400 based on the expectation business momentum will continue into 2024.

Morgan Stanley and UBS are the most recent to raise their price targets. They have the stock pegged at $450 and $525, close to the high price target. They cite positive data related to password sharing and user churn; UBS expects the company to beat its guidance for the quarter, raise guidance for the year, and still accelerate business into the end of the year. 

The Bar Is Set Low For Netflix 

The bar for Netflix Q2 results is low despite the recent positive chatter. The Q2 consensus figure has seen 19 downward revisions in the last 90 days compared to only 7 upward, suggesting it could easily outpace the figure. Given the data, Netflix is expected to accelerate growth to about 6% YOY and could produce as much as 8% or 9% growth.

However, Monness, Crespi, Hardt & Co are not sanguine on the outlook. They see headwinds in the form of less-compelling content and the Hollywood writers' strike cutting into results. In their view, the company will report in line with the quarter's consensus but below the year's consensus. 

One reason investors might not want to underestimate Netflix’s results is news it was looking to enhance its ad services. Enhancements would include targeted and episodic ads intended to capture clicks and drive results for advertisers. AI will likely aid this goal, which the company uses to enhance its production capabilities and user interfaces.

The Institutional Tide Is Rising For Netflix 

The institutional activity helped drive NFLX shares to their lows last year, helping to drive shares higher in 2023. Institutional activity is net-bullish for the 1st half of 2023 and has the total holdings up to 90%. The net activity in Q3 is also bullish and may ramp up again if the Q2 results are solid. 

The chart favors higher share prices and shows a Bull-Flag/Rising Triangle. The pattern is a continuation signal that a break to higher price levels would confirm. The catalyst for that may come with the Q2 earnings report if the analysts don’t spur the market to rally beforehand.