Netflix Stock Soars on Impressive Q4 Results, Potential Upside Ahead

Netflix (NASDAQ: NFLX) experienced a remarkable surge in its stock price today, jumping over 12% to $552.63 following the release of its impressive Q4 2023 results. However, analysts predict that there is still considerable upside potential for NFLX stock, valuing it at $625 or more. This projection is based on the company’s robust free cash flow (FCF) over the next 12 months.

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In his previous articles, Mark R. Hake, CFA, highlighted Netflix’s substantial FCF in Q4. The company reported that its FCF totaled $6.925 billion in 2023, representing 20.5% of its $33.725 billion in total revenue for the year. With revenue projected to increase sequentially by 4% in Q1, analysts anticipate a potential run-rate revenue growth of 16% in the coming year. This estimate suggests that NFLX could achieve $40 billion in revenue, resulting in approximately $8.21 billion in FCF assuming a steady FCF margin of 20.5%.

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The anticipated surge in FCF holds significant implications for Netflix’s stock valuation. By employing a 3.0% FCF yield metric, which represents the dividend yield the stock would likely achieve, the stock price could potentially rise substantially. This calculation is derived by dividing the $8.21 billion FCF estimate by 3.0%, resulting in a valuation of $273.7 billion or approximately $625.08 per share. Moreover, this estimate indicates that NFLX stock could be worth 27% more than its previous price of $492.19 per share, reinforcing the projected upside.

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As a result of Netflix’s promising FCF, analysts are likely to increase their price targets for the stock. Prior to the Q4 results, the average price target from 42 analysts surveyed by Barchart, a sell-side analyst tracking service, was . Expectations suggest that these price targets will notably rise in the coming week.

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It is important to recognize that the exceptional FCF generated by Netflix could lead to a significant increase in NFLX stock price. The company’s expanding membership base, crackdown on password sharing, and the introduction of an ad-supported tier have positively impacted its revenue and profitability. As a mature and large company, Netflix’s recent growth and improved margins have contributed to this surge in stock price, reaching two-year highs. With the increased profitability, Netflix can continue investing in growth opportunities, indicating that this positive streak may continue.