Increased confidence in management fuels Baird to upgrade Netflix stock

Baird analysts upgraded Netflix (NASDAQ:) shares to Outperform with a price target hiked by $160 to $500 per share.

The rating change is fueled by Baird’s increased confidence in the company’s execution, with a special focus on new initiatives like advertising and paid sharing. The analysts flag 5 reasons why they are more confident in Netflix’s management.

1. Commentary that ad-supported plans are generating peruser economics above Basic (ad-free) plans globally;
2. Healthy early results from paid sharing;
3. The decision to remove the Basic (ad-free) plan for new/returning users in key markets;
4. Management’s acknowledgment that its broader pricing philosophy has not changed;
5. Survey results show Netflix is maintaining its popularity among consumers.

“With near-term expectations better calibrated following the 2Q23 print, we think NFLX is entering a period of particular strength for the business, including: 1) significant revenue acceleration in 4Q23 and F24 as the benefits of paid sharing and advertising compound, 2) continued annual operating margin expansion given the high-margin nature of new revenue streams and the benefits of scale, 3) significant and growing FCF over the next few years, and 4) competitive advantages in the near-term as peers increasingly focus on profitability and navigate disruptions to content production, where NFLX may be relatively better positioned,” the analysts further noted in an upgrade note.

Although the valuation is “admittedly rich,” the analysts believe the rating change is justified, given the underlying momentum and unique qualities of the business.

Netflix shares are trading modestly higher in pre-market Monday.