Netflix Stock Soars After Impressive Q4 2023 Results, FCF Points to Even Higher Value

Netflix (NFLX) stock is experiencing a remarkable surge today, with an increase of over 12% to $552.63, following the announcement of its outstanding Q4 2023 results. However, the current value of NFLX stock could be substantially higher, potentially reaching $625 or more, as indicated by its robust free cash flow (FCF) estimates over the next 12 months.

In two previous articles on Barchart, Mark R. Hake, CFA pointed out the significant value of Netflix’s FCF. The first, published on Jan. 7, was titled “Netflix Stock Still Has $100+ Upside Potential Based on Free Cash Flow,” followed by “Netflix May Be Worth $100 Billion More Based on Massive Free Cash Flow” on Dec. 12, 2023.

Netflix reported yesterday that its FCF for 2023 alone stood at an impressive $6.925 billion, representing 20.5% of its total revenue of $33.725 billion for the year. With projected revenue growth of 4% sequentially in Q1, Netflix’s revenue could increase by over 16% in the next year. Analysts even estimate that revenue could reach $42.60 billion in 2025, indicating a potential run-rate revenue of $40 billion in the near future.

Based on this forecast, the FCF could reach $8.21 billion (i.e., $6.925b x 1.186), assuming the FCF margin remains at 20.5%. However, this margin is likely to increase due to a significant portion of revenue coming from new memberships and expanding ad revenue. These factors result in lower expenses and higher FCF for Netflix.

The estimate of $8.2 billion in FCF has substantial implications for NFLX stock. Using a 3.0% FCF yield metric, and considering this as the potential dividend yield the stock could achieve if the company paid out 100% of its FCF, the stock price could rise substantially. Dividing the FCF estimate by 3.0% suggests a value of $273.7 billion (i.e., $8.21b / 0.03 = $273.7 billion) for Netflix. This calculation signifies a potential increase in stock price by 27%, indicating a target price of $625.08 per share.

Considering the current value of NFLX stock at $552.63 in morning trading today, this target price represents a 13% increase. Analysts are also expected to revise their price targets upwards following the impressive results. Prior to the release of Q4 2023 results, the average price target from 42 analysts surveyed on Barchart, a new sell-side analyst tracking service, was [insert average price target]. It is anticipated that these target prices will increase significantly in the coming week.

To summarize, Netflix’s robust FCF estimates have the potential to significantly increase the value of NFLX stock.