Tech

Buy Netflix Stocks Now for These Reasons, Analyst Says

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Shares of Netflix Inc. rose Monday to weather the sell-off in the broader stock market after Oppenheimer’s new analyst covering the streaming video giant lays out reasons why it’s time for investors to get back in the game.

The stock
NFLX,
+2.02%

climbed 2.3% in pre-market trading, while futures
ES00,
-0.67%

for S&P 500 index
spx,
-0.72%

fell 0.9%. It was the sole part of SPDR Communication Services Select Sector exchange-traded fund
XLC,
-1.06%

that gained ground for openness.

Analyst Jason Helfstein took on Netflix’s coverage and upped the rating to outperform. He set a price target of $325 for the stock, representing an increase of about 35% from Friday’s closing price of $240.13.

Not only will the launch of a cheaper ad-tier subscription attract a number of new subscribers, Helfstein believes there is a greater chance of re-engagement with those who have previously stopped using the service.

“Ad-level ad launch should accelerate subscriber growth and boost ARPU [average revenue per user] and slow churn,” Helfstein wrote in a note to customers.

He also believes that Netflix will demand a high cost-per-thousand (CPM) from advertisers, as it still has the highest viewership in the industry, and as streaming keeps sharing from television.

Read also: Traditional TV ‘enters a clear abyss,’ says former Disney CEO Iger.

“[Netflix] attracts a significant audience for major show releases, similar to awards ceremonies and major sporting events, suggesting the company may sell ads at CPMs well above the normal TV average,” Helfstein wrote. “In addition, it could choose to show in conjunction with product launches from major advertisers.”

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He believes Netflix should take tough action share passwordto be partnership with Microsoft Corp.
MSFT,
-0.26%

on the ad-supported subscription and the step into the gaming arena could offer further upside potential to the results and the stock.

With Helfstein’s upgrade, 14 of the 45 analysts polled by FactSet are bullish on Netflix, while 6 are bearish and 25 are neutral. At the end of 2021, 34 of 47 analysts were bullish, 4 bearish and 9 neutral. The stock’s average target price has fallen to $244.91 from $681.79 over the same time.

FactSet

Meanwhile, Netflix’s stock has been wavering in recent months, as better than expected second quarter results reported in July sparked an uptick. That followed a hugely disappointing first quarter report in April, in which the company said it was losing subscribers for the first time since childhood.

read more: Netflix bull case has been ‘severely tested’, but now is the time to buy, Evercore says.

After dropping 72.4% so far to a five-year close of $166.37 on May 11, the stock is up 44.3% through Friday. By comparison, the communications services ETF is down 8.8% since May 11 and the S&P 500 is down 1.6%.

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