Netflix Stock Soars on Massive Free Cash Flow, Entering Two-Year Highs

Shares of subscription-streaming service Netflix surged to two-year highs on Wednesday following its release of completed financial results for Q4 2023. The company reported a significant surge in growth and higher-than-expected profits, leading to a 12% increase in Netflix stock as of 11:20 a.m. ET.

In late 2022, Netflix introduced a subscription tier supported by advertising and cracked down on users sharing passwords in mid-2023. These strategic moves seem to have stimulated growth for the company, which saw its paid memberships increase by nearly 30 million from the end of 2022, reaching a total of 260 million by the end of 2023. In comparison, Netflix added fewer than 10 million new memberships in 2022.

Thanks to its larger membership base and operational discipline, Netflix witnessed a significant surge in profits. The company’s full-year margin for 2023 rose to 21%, up from 18% in 2022. Additionally, its free cash flow (FCF) increased from $1.6 billion in 2022 to an impressive $6.9 billion in 2023.

Netflix’s forecast for 2024 has also excited investors. The company expects a more than 13% year-over-year increase in first-quarter revenue, which would be its highest quarterly growth rate since Q4 2021. For the full year, Netflix predicts an operating margin of 24%. These projections, along with the company’s impressive financial performance, have contributed to the current surge in its stock price.

Analysts are likely to increase their price targets for Netflix stock following the release of its strong financial results. Before the report, the average price target among 42 analysts surveyed by Barchart was _____.

The company’s strong free cash flow has significant implications for the valuation of its stock. Based on its estimated FCF of $8.21 billion and a 3.0% FCF yield, NFLX stock could potentially rise to $625.08 per share, representing a 27% increase from its previous closing price.

Netflix’s remarkable FCF and robust financial performance have led to a surge in its stock price, reaching two-year highs. The company’s growth projections for 2024 and its strong profitability further support its positive trajectory and potential for continued expansion.