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Bank of America declared Netflix the winner of the streaming wars.
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The bank increased its Netflix price target to $585, representing potential upside of 22%.
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“The broader crackdown on password sharing will be an accelerant to NFLX’s ad-supported tier.”
Netflix is the “king in streaming” and its stock price could surge 22%, according to a Wednesday note from Bank of America.
The bank reiterated its “buy” rating on Netflix and increased its price target to $585 from $525. Shares currently trade at about $480.
Changing market dynamics over the last 18 months and investors’ renewed focus on profitability have made it “increasingly clear that Netflix has won the ‘streaming wars,'” analyst Jessica Reif Ehrlich said.
“These changes have been a tacit acknowledgement that not all media companies will be able to achieve Netflix’s global reach and scale in streaming,” she added.
This should be a “win-win” moment for Netflix as it should increase the availability of third-party content that Netflix can acquire. That would drive efficiencies for Netflix’s spending strategy.
“The company no longer needs to finance as much higher-risk new production and can supplement more concentrated ‘bets’ with well-known established content,” Ehrlich explained.
This trend has been evidenced by the fact that much of Netflix’s top 10 list of TV shows and movies has been third-party content recently.
Netflix should also see continued growth from its password-sharing crackdowns in the near term and its low-cost advertising subscription plan in the medium to long term, according to the note.
“At the $6.99 price point, the ad-supported tier provides an attractive low-priced option for ‘borrowers’ who still wish to access the Netflix service. In our view, the broader crackdown on password sharing will be an accelerant to Netflix’s ad-supported tier,” Ehrlich said.
Netflix recently disclosed that it now has more than 23 million active users for the ad-supported tier, which was previously reported to be 15 million in November and 5 million in May.
“We continue to be bullish on the longer-term opportunity in advertising on demand as Netflix’s pricing strategy should drive scale and new bundling agreements lower the retail price for consumers and decrease marketing spend and churn for Netflix,” Ehrlich said.
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