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In a research note to investors Tuesday, MoffettNathanson said they believe the Street may be over-estimating Netflix’s (NASDAQ:NFLX) ad-tier upside opportunity.
Analysts raised the firm’s price target on the stock by $30 to $220 per share.
They said that in mid-June, the firm initially estimated Netflix’s advertising opportunity, forecasting $1.2 billion of domestic advertising revenue by 2025. However, with more details, it now estimates Netflix could generate net UCAN ad revenue of $1.7 billion and international net ad revenue of $1 billion for a total of $2.7 billion in 2025. Even so, the firm believes some of the growth in ad-supported RPU will be offset by lower subscription RPU.
“Given these moving pieces and the higher incremental margin of the ad revenue stream, we are raising our 2023 EPS estimate by +10% to $10.20. Our positive revisions become more substantial over time, as our 2025 EPS estimate increases by nearly +$2 to $13.40 and our 2027 EPS increases by +20% to $16.80,” wrote the analysts.
However, they added that “it appears to us that the sell-side may be over-estimating this opportunity.”
“While we are largely in line with consensus for 2022 and 2023, the Street is forecasting much faster long-term revenue growth. Our 2025 revenue estimate of $38.2 billion is -8% below consensus. However, due to higher consensus margins (+210 bps higher in 2025E), we are -17% below consensus EBIT in 2025 at $7.8 billion and -19% below 2025 consensus EPS at $13.40.”
