Netflix Stock Surges on Strong Q4 Results, Potential Value Growth

Netflix stock is experiencing a significant surge, with a 12% increase to $552.63, following the release of its impressive Q4 2023 results. However, analysts believe that the stock has even more value potential, closing in at $625 or more. This estimation is based on the company’s strong free cash flow (FCF) projections for the next 12 months.

n

Previously highlighted in several articles, Netflix reported a remarkable FCF of $6.925 billion in 2023, accounting for 20.5% of its total revenue of $33.725 billion. It is anticipated that this impressive FCF will improve further in the coming year. For instance, the company projects a 4% sequential increase in revenue for Q1 alone, potentially leading to over 16% growth in the next year.

n

Analysts currently project Netflix’s revenue to reach $42.60 billion in 2025, indicating a possible run-rate of $40 billion. This implies an 18.6% increase in sales and suggests that FCF could potentially reach $8.21 billion, assuming the FCF margin remains at 20.5%.

n

It is highly likely that FCF will continue to rise given the substantial revenue from new memberships and exponential growth in ad revenue. These factors will result in lower expenses tied to acquisitions and new ad revenue, ultimately driving higher FCF.

n

The estimated $8.2 billion FCF holds significant implications for NFLX stock. Calculating the 3.0% FCF yield metric reveals a potential rise in the stock’s value. Dividing the FCF estimate by 3.0% indicates a value of $273.7 billion, or multiplying it by 33.33. The 3.0% metric is based on the assumption that if Netflix were to pay out 100% of its FCF as a dividend, the dividend yield would likely be around that level. Furthermore, this aligns closely with the existing FCF yield, which stands at 3.2%.

n

This indicates that NFLX stock could be valued 27% higher than its previous closing price of $492.19, amounting to $625.08 per share. This value still represents a 13% increase from the current trading price of $552.63.

n

As a result of this promising FCF, it is expected that analysts will revise their price targets for NFLX stock. Prior to the release, the average price target among 42 analysts surveyed by XYZ Analyst Tracking Service was [original average price target], and it is likely to rise significantly in the coming week or so.

n

The bottom line is that Netflix’s robust FCF has the potential to drive a considerable increase in the value of NFLX stock.