Netflix’s Q4 2023 Results Show Impressive Free Cash Flow, NFLX Stock Surges 12%

Netflix (NFLX) stock is experiencing a significant surge, increasing by over 12% to $552.63, following the impressive Q4 2023 results released earlier this week. However, experts believe that NFLX stock has the potential to be worth even more, estimating a value of $625 or higher based on the company’s strong free cash flow (FCF) projections for the next year.

The massive FCF was highlighted in previous articles, such as one published on January 7 titled ‘Netflix’s Q4 FCF Estimates Point to a $625 Stock Price’ and another article from December 12, 2023.

Netflix reported that its FCF reached an astounding $7.41 billion in Q4 2023 and $6.925 billion for the entire year. This represents approximately 20.5% of its total revenue, which amounted to $33.725 billion for 2023. Experts anticipate that this trend will only improve over the coming months, with the company projecting a 4% sequential increase in revenue in Q1.

Analysts predict that Netflix’s revenue will reach $42.60 billion in 2025, reflecting a remarkable growth rate. If this estimate holds true, the company could potentially be on track to achieve $40 billion in revenue, an 18.6% increase on a run-rate basis. This implies that FCF could reach $8.21 billion ($6.925b x 1.186) while maintaining a 20.5% FCF margin.

The growth in FCF has vast implications for the value of NFLX stock. Using a 3.0% FCF yield metric, the stock could experience a substantial rise from its current price. This is calculated by dividing the estimated FCF of $8.21 billion by 3.0%. Alternatively, multiplying the FCF by 33.33, the inverse of 3.0%, illustrates a potential stock value of $273.7 billion.

A 3.0% FCF yield could be achieved if Netflix were to pay out 100% of its FCF as a dividend. In fact, this is close to its existing FCF yield, which currently stands at 3.2%. Hence, if the company were to fully utilize its FCF, NFLX stock may be worth 27% more than its current trading price, amounting to $625.08 per share.

This latest development is expected to spur analysts to increase their price targets for Netflix. Prior to the release of the Q4 2023 results, the average price target among 42 surveyed analysts was $596. Expect a significant rise in these target prices over the next week as experts reassess their estimates.

Ultimately, Netflix’s robust FCF could potentially lead to a substantially higher valuation for NFLX stock in the near future.