Analysts Bullish on Netflix Ahead of Earnings: Here's Why

Netflix (NFLX) is set to report its fourth-quarter earnings after the market closes on Tuesday, and analysts are bullish on the streaming giant's prospects. With a majority of analysts tracked by Visible Alpha having a "buy" or equivalent rating, the consensus price target implies more than 5% upside for Netflix stock. Here's what analysts are focusing on ahead of the earnings report.

1. Advertising Tier Growth: Netflix's ad-supported plan has been a major success, with advertising revenue expected to reach $2 billion in 2025, $3 billion in 2026, and $4.5 billion in 2027. This growth is driven by the increasing popularity of the ad tier and Netflix's ability to monetize it effectively. Macquarie analyst Tim Nollen estimates that advertising revenue will reach $2 billion in 2025, $3 billion in 2026, and $4.5 billion in 2027.
2. Live Events: Live events, such as the NFL Christmas games, the Tyson/Paul fight, and WWE, have proven to be a significant driver for Netflix subscriber growth and retention. Nollen estimates that Netflix made money on these events and expects the company to continue acquiring premium live content to drive subscriber growth, retention, and ad revenue. This strategy could force pay TV subscribers out of the market, as Netflix can distribute and monetize live events globally.
3. Price Increases: Netflix is expected to increase prices for its U.S. standard plan, which could add around $600 million in annualized revenue each year. This price increase is likely to be well-received by subscribers due to Netflix's strong content library and high engagement, which could keep churn low. Live events and popular content can further enhance Netflix's value proposition, making price increases more palatable to subscribers.
4. Intelligent Content Spending: Netflix's strategic content spending, focusing on popular and highly anticipated releases, has been a key driver of subscriber growth. The company's ability to invest in and produce high-quality content will continue to attract and retain subscribers, further solidifying its position in the streaming market. For instance, Netflix's original series like "Squid Game" and "Stranger Things" have been massive hits, driving subscriber growth and engagement.

In conclusion, analysts are bullish on Netflix's long-term prospects, with a focus on advertising tier growth, live events, price increases, and intelligent content spending. With a majority of analysts having a "buy" or equivalent rating, the consensus price target implies more than 5% upside for Netflix stock. As Netflix reports its fourth-quarter earnings, investors will be closely watching these key areas to gauge the company's performance and future growth prospects.