Netflix Stock Soars as Strong FCF Points to Higher Valuation

Netflix stock is experiencing a significant surge, rising over 12% to $552.63, following the release of its impressive fourth-quarter 2023 results. However, analysts believe the stock could be worth as much as $625 or more due to the company’s robust free cash flow (FCF) projections for the next 12 months.

The FCF numbers were highlighted in previous articles, showcasing the company’s FCF hitting $6.925 billion during 2023. This amount represented 20.5% of Netflix’s total revenue of $33.725 billion for the year, indicating room for further improvement. In fact, analysts project that the company’s revenue will grow to $42.60 billion in 2025, which could lead to a run-rate of $40 billion in revenue, representing an 18.6% increase.

As a result, FCF is estimated to reach $8.21 billion, assuming a flat FCF margin of 20.5%. Given a 3.0% FCF yield metric, the stock could see substantial growth. This implies a potential increase of 27%, resulting in a stock price target of $625.08 per share, which is 13% higher than the current price.

The powerful FCF has significant implications for the valuation of NFLX stock, leading to expectations for higher price targets. Prior to the release of the quarterly results, the average price target among 42 analysts surveyed by Barchart was $606.09 per share. These targets are likely to increase significantly in the coming weeks.

Netflix’s tremendous FCF can be attributed to several factors, including the influx of new memberships resulting from the introduction of a subscription tier supported by advertising and the crackdown on password sharing. Additionally, the growth in ad revenue and lower expenses from new acquisitions are expected to contribute to higher FCF.