Netflix Inc. has experienced a sell-off following its latest earnings report, but Baird analyst Vikram Kesavabhotla remains optimistic about the company's future.
In a recent note to clients, Kesavabhotla expressed confidence in Netflix's execution of new initiatives such as advertising and paid sharing, which has contributed to a strengthening financial profile. He believes that this will ultimately improve investor sentiment over time.
As a result, Kesavabhotla upgraded Netflix shares from neutral to outperform and raised his price target to $500 from $340. While acknowledging the stock's rich valuation, he believes that the premium is justified given the underlying momentum and unique qualities of the business.
Netflix recently revealed that its ad-supported plans are generating better economics on a per-user basis compared to its standard and ad-free plans. This positive trend is expected to continue as the company's advertising infrastructure evolves, macro trends become more supportive, and international markets mature.
Netflix Drops Basic Streaming Plan in Push for More Users of Ad-Supported Plan
A recent move by Netflix to eliminate their basic ad-free plan has been seen as a significant validation of their monetization initiatives. The company has suggested that their efforts to crack down on password sharing have produced healthy early results, with sign-ups now surpassing cancellations.
Furthermore, Netflix has the potential to increase prices in the future. This has led experts to take a more bullish view on Netflix shares, as they believe there is a more supportive valuation backdrop across the sector. It is expected that Netflix will be seen as a winner in the eyes of Wall Street investors.
Investors are increasingly gravitating towards Netflix due to its scarcity value as a pure-play streaming asset, as well as its scale, profitability, and proven track record. Additionally, Netflix is exploring new areas such as livestreaming and games, which could introduce incremental drivers over time and enhance the long-term investment case.
Despite these positive developments, Netflix shares have not experienced a boost, as they have been slightly declining in morning trading. This marks the third consecutive session of declines, with the stock currently down more than 11% over this period.
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