Against a soft backdrop for the midweek session, streaming giant Netflix (NASDAQ:NFLX) helped bring some cheer to Wall Street. Oppenheimer analysts anticipate greater demand for the company’s content service due to its password-sharing ban and the possible elimination of its lowest-priced advertisement-free plan. Basking in the enthusiasm, NFLX stock gained almost 4% in the late afternoon hours.
Specifically, Oppenheimer’s Jason Helfstein reiterated the underlying “buy” rating. However, the expert raised per-share pricing expectations to $500 from $450. Although an optimistic target, it’s not the absolute highest forecast. That honor goes to Pivotal Research Group’s Jeffrey Wlodarczak, who raised his target of NFLX stock to $535 from $425.
Nevertheless, both Helfstein and Wlodarczak agree regarding the primary catalyst for Netflix: its sharp pivot away from encouraging password sharing with non-subscribers to banning the practice. Subscribers can still share their passwords with people outside their households. However, they must pay extra for the privilege.
Oppenheimer’s experts are encouraged by early data indicating a rise in sub count following the password crackdown. In addition, they also anticipate that Netflix will discontinue its lowest-priced ad-free plan, which is currently undergoing tests in Canada.
By eliminating this tier, Oppenheimer believes that the streaming firm can unlock approximately $15.50 in revenue per sub. This compares favorably to $9.99 for the ad-free option.
Economic Realities May Also Lift NFLX Stock
So far this year, NFLX stock has been firing on all cylinders, gaining roughly 47% since the January opener. Over the trailing one-year period, shares skyrocketed to nearly 141%. However, if Oppenheimer analysts are correct, NFLX can still generate double-digit percentage gains. Although ambitious, it might not be entirely speculative.
Fundamentally, NFLX stock may benefit from the trade-down effect. Put another way, when consumers face financial pressures, they might not cut their favorite expenditures cold turkey. Instead, they may trade down to cheaper alternatives of the underlying goods and services until an acceptable equilibrium between cost and quality is reached.
When it comes to entertainment (specifically, escapism-related entertainment), it doesn’t get much cheaper than Netflix.
Even in 2023, the concept of “revenge travel” — that is, pent-up demand for vacationing following the Covid-19 quarantines — represents a key catalyst for the underlying industry. However, more recent data suggests that this consumer phenomenon may be fading. If so, Netflix stands to soak up entertainment demand.
It’s not an unreasonable proposition. Data from the Federal Reserve Bank of New York shows that total household debt soared to just over $17 trillion. In addition, top-tier companies have announced layoffs, mainly in the technology space but outside it too.
Taken together: people need to watch their spending. Basically, Netflix allows consumers to enjoy some reprieve from the pressures of life while also being friendly to the wallet.
Why It Matters
While a $500 price target might not be unrealistic for NFLX stock, prospective investors should note that the opinion space has become more contested. Over the past two weeks, Benchmark’s Matthew Harrigan and Societe Generale’s Christophe Cherblanc issued “sell” ratings. Also, their price targets sat at $250 and $335, respectively, with both implying hefty double-digit risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
