Wells Fargo very bullish on Netflix (NFLX); Sees at least 20% potential in shares

After conducting a deep-dive analysis into the company's paid sharing efforts, Wells Fargo analyst Steven Cahall reiterated an Overweight rating and a $400 per share price target on Netflix (NASDAQ: NFLX).

The analyst believes the recent ~10% rally in Netflix shares “reflects early bullishness around the paid sharing opportunity.”

“While much has been written on AVOD, paid sharing is arguably the bigger near-term earnings opportunity given some 100mm global paid sharers incl. 30mm domestically… Significant upward revisions look likely,” Cahall said in a note sent to clients.

Cahall highlights the Street’s consensus for Netflix to add 15 million subscribers this year. He is more bullish and believes that Netflix could add more than 20 million paid sharing subscribers alone.

“Our base case is paid sharing will deliver incremental revenue of nearly $3bn, so if we're in the ballpark, it implies '24E Street revenue is far too low since AVOD and base subscription revenue is also growing,” Cahall added.

The analyst still sees an attractive entry in Netflix shares despite a 12% rally in shares year-to-date. Cahall’s price target of $400 per share implies a ~20% upside potential.

However, the analyst also sees a realistic case for Netflix shares to trade at $430 apiece “and potentially as high as $560/sh using our bull case EPS.” The latter implies a near 70% rally from current levels.

“We continue to like the stock here and view the entry point as attractive despite the recent run. Q1 comments on paid sharing should be a catalyst,” Cahall concluded.

By Senad Karaahmetovic

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