Seaport Upgrades Netflix to 'Buy' Ahead of Earnings Report

Netflix (NFLX) investors, buckle up! Seaport Research Partners has just upgraded the streaming giant's stock to 'Buy' from 'Neutral', ahead of its earnings report next week. Analyst David Joyce is bullish on Netflix, setting a price target of $955, which implies a 12.6% upside from Wednesday's close. Let's dive into the key factors driving Seaport's optimism.



1. Top-line growth: Seaport expects Netflix to gain 9 million subscribers on balance in the fourth quarter, up from a previous forecast of 5.7 million. This indicates strong subscriber growth, which is a key driver of Netflix's revenue.
2. Operating income margin expansion: Netflix is expected to expand its operating income margin, which is a positive sign for the company's profitability.
3. Free cash flow conversion: Netflix is converting its free cash flow at a high rate, which is important for the company's long-term sustainability.
4. Strong content: Netflix's original content, such as the second season of "Squid Game," is expected to drive subscriber engagement and retention.
5. Advertising growth: Netflix's ad-supported subscription plans have shown promising early growth, with ad members increasing by 35% quarter-over-quarter. This is expected to double by 2025E, enhancing overall revenue visibility.
6. Live events and sports rights: Netflix's work in streaming special events and recent showing at the Golden Globes can bolster the streamer in media rights conversations going forward.



Joyce noted that shares have retreated leading up to the report, with shares down nearly 5% in the new trading year. However, he believes Netflix should remain a core holding due to its top-line growth, operating income margin expansion, and free cash flow conversion.



Investors will be closely watching Netflix's earnings report, set for Tuesday after the bell. Analysts anticipate earnings per share of $4.2 on revenue of $10.13 billion. As Netflix continues to navigate the evolving landscape of digital entertainment, its upcoming report will provide further insights into how effectively it is tackling the challenges ahead.

So, Netflix investors, keep your eyes peeled for the upcoming earnings report. With Seaport's bullish outlook and the streaming giant's strong fundamentals, there's plenty to be excited about. Stay tuned for more updates and analysis!