Netflix Surges After Reporting Strong Q4 2023 Results

Netflix stock is experiencing a significant surge, climbing over 12% to $552.63 following the release of its impressive Q4 2023 results. However, analysts believe that the stock could be valued even higher, potentially reaching $625 or more. This projection is based on the company’s robust free cash flow (FCF) expected over the next 12 months.

Extensive focus has been placed on Netflix’s substantial FCF in recent discussions. Previous articles highlighted the company’s impressive FCF figures, emphasizing its potential. Based on the latest report, Netflix announced that its FCF for 2023 reached an astounding $6.925 billion, equivalent to 20.5% of its total revenue for the year, which amounted to $33.725 billion. This trend is likely to improve further in the coming months, with a projected 4% sequential increase in revenue for Q1 alone. If this pace continues, revenue could increase by over 16% within the next year.

Industry analysts have projected that Netflix’s revenue will continue to soar, reaching $42.60 billion by 2025. This suggests that the company might be on track to hit $40 billion in revenue within the next year or shortly after. With sales potentially increasing by 18.6% on a run-rate basis, the estimated FCF could reach $8.21 billion, assuming that the FCF margin remains steady at 20.5%.

Netflix’s FCF estimate of $8.2 billion has significant implications for the valuation of NFLX stock. By utilizing a 3.0% FCF yield metric, the stock could experience substantial growth. This metric involves dividing the FCF estimate by 3.0%, resulting in a valuation of around $273.7 billion. Alternatively, multiplying the FCF estimate by 33.33, the inverse of 3.0%, also gives the same valuation figure. The usage of this metric is strategic, as it represents the dividend yield the stock would likely achieve if the company decided to distribute its entire FCF as dividends. Moreover, this yield is in line with the existing FCF yield of approximately 3.2% based on the market cap of $215.4 billion.

This calculation implies that NFLX stock could be worth approximately 27% more than its previous day’s closing price, which stood at $492.19 per share. Consequently, the estimated price target would be $625.08 per share, indicating a 13% increase compared to its current trading value of $552.63 per share.

This optimistic outlook for the stock’s valuation is expected to prompt analysts to revise their price targets. Prior to the release of the Q4 2023 results, the average price target among 42 analysts surveyed by Barchart was [insert previous average price target]. It is anticipated that these target prices will see a significant increase over the next week or so in light of the impressive FCF figures.

Considering the robustness of Netflix’s FCF, it is highly likely that the stock will be valued much higher in the future.