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Wells Fargo Analyst Declares That Netflix ‘Pain Is Over’

Steven Cahall believes Netflix stock is worth $300 per share. That's half what it was at the end of 2021, but a much more bullish target than most.

Boo, Bitch. (L to R) Austin Fryberger as Archer, Mason Versaw as Jake C, Brittany Bardwell as Sophia, Conor Husting as Jake W in episode 108 of Boo, Bitch. Cr. Erik Voake/Netflix © 2022

Netflix’s “Boo, Bitch” Episode 108.

ERIK VOAKE/NETFLIX

Tuesday was nerve-racking — not just for Netflix, which reported its second-quarter earnings, but really for anyone in Hollywood with ties to a subscription-based streaming service. Fortunately, a loss of just 970,000 subscribers (that’s less than a million!) was not as bad as Wall Street’s expectations and it was half of what Netflix itself predicted back in April. In that context, a significant loss became a major win.

As Netflix founder and Co-CEO Reed Hastings acknowledged during Netflix’s Q2 earnings call, “Tough in some ways losing a million and calling it a success.”

The media analysts at Wells Fargo believe Netflix “has found a bottom.” That means there’s nowhere to go but up — especially with an ad-supported tier and password-sharing crackdowns on the horizon. (Those programs will roll out domestically in 2023, but their financial impact will likely not be realized until at least 2024.)

“While it’s too early to visualize the company’s longer-term financial complexion, which keeps us happier on the sidelines, we think the recent pain is over,” Wells Fargo’s lead analyst Steven Cahall wrote in a note distributed to clients — and obtained by IndieWire — on Wednesday.

The most acute Netflix pain is its subscriber declines (starting with a loss of 200,000 subs in the first quarter, its first decline in a decade) and a plummeting stock price. Both of those may now, mercifully, be over. Netflix forecast a third-quarter addition of 1 million subscribers. While that’s lower than they previously thought and a slower pace than prior years, it would come close to returning the base to fiscal-year 2021 levels.

As for the company’s share price, that’s going to take a lot longer to sort out. It is also quite possible, if not extremely probable, that NFLX shares will never trade anywhere near their November high of $700.99. On Tuesday, Netflix stock climbed above $200 per share for the first time since early June. The 52-week low is $162.71).

On the news of better-than-expected subscriber and earnings results (though not revenue), the share price reached about $215. On Wednesday, it closed at $216.44, down 69 percent from the heights of fall 2021. After the Q1 bombshell, Netflix stock dropped from $348.61 per share to $226.19, literally overnight. The company shed about $175 billion in market cap value since the end of 2021; currently, Netflix is worth roughly $96 billion by that measure.

The Gray Man

Chris Evans in Netflix movie “The Gray Man.”

Netflix

So, no more “pain,” perhaps, but will there be gain? Cahall & co. (still) think the current per-share price makes NFLX a bargain, and have reiterated their lofty (these days) price target $300 per share. That’s more optimistic than most: MoffettNathanson analysts have a $190 price target on Netflix shares, down $20 from their previous target.

“When you look at the cash flow yields or price to earnings multiples of stocks that are driven more by pricing than volume growth, we would argue that, even with slowing content growth in the next few years, Netflix’s valuation just isn’t there yet,” Michael Nathanson and his team wrote in their own Wednesday note.

UBS and Wedbush placed their 52-week price targets in between those of Wells Fargo and MoffettNathanson. The more bullish Wedbush kept its previous $280 NFLX price tag; UBS sees the stock as worth $198.

All told, Wells Fargo forecasts that Netflix will add a net 2.5 million subscribers in 2022 and 7.8 million in 2023. If those additions plus the company’s new revenue streams gets NFLX back to $300, well, investors will swill champagne. Imagine selling a stockholder on that price point this past New Year’s Eve, when shares were worth twice as much — that would have felt as crazy as the concept of Netflix with commercials.

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