The No. 1 premium video streamer won a big vote of confidence from an analyst firm that has been among the most conservative on Wall Street in estimating Netflix‘s future growth.
Analysts at MoffettNathanson on Monday upgraded their rating on Netflix from “neutral” to “buy” and increased their 12-month price target on the stock from $850 to $1,100/share.
On MoffettNathanson’s upgrade and bullish commentary, Netflix shares were up 3.7% in morning trading Monday, amid smaller upticks in S&P 500 (+0.22%) and Dow Jones Industrial Average (+0.61%) and a decline in the Nasdaq Composite (-0.35%).
MoffettNathanson said it raised estimates on the streamer on “greater confidence in the margin expansion story.” “Netflix has won the streaming wars. Case closed,” the analysts, led by Robert Fishman, wrote in the note. But the key question is, “How much more runway for growth is ahead?”
Their short answer: “There’s lots of runway ahead.” While Netflix will incur “some incremental costs” as it builds out its in-house advertising business — and the company continues to increase content spending — continued growth in subscription revenues and faster growth in advertising should drive margin expansion of at least 200 basis points per year going forward, according to MoffettNathanson’s modeling. The analysts expect Netflix operating margin to reach 40% by 2030 “with room to grow from there.” Netflix is targeting an operating margin of 29% for 2025, compared with 26.7% in 2024.
As Netflix builds out its ad capabilities through a first-party tech stack and in-house sales team, the company will “be able to effectively ramp monetization” of subscribers on its advertising tier, per MoffettNathanson. The analysts now forecast Netflix generating more than $6 billion in ad revenue in 2027 and almost $10 billion by 2030.
“The ad tier presents a lower-cost option to those subscribers where the premium ad-free pricing was becoming a stretch, but more importantly it has attracted new potential subscribers with a lower entry point,” the MoffettNathanson team wrote. “These subscribers can now be monetized more effectively in a dual revenue stream model with the addition of advertising. As we look forward, the success of the ad-tier should drive margins higher without any ceiling in sight.”
Meanwhile, on the “core” business — subscriptions without ads — Netflix still has room to expand, per the MoffettNathanson analysts. When analyzed by revenue per hour viewed (in the U.S.), Netflix “still appears to be underearning relative to its engagement, and we believe the company still has a consumer surplus to price into going forward,” they wrote. Based on viewing data from Nielsen and U.S. revenue by platform, Netflix in 2024 earned 40 cents of revenue per hour viewed — much lower than Paramount+ (87 cents per hour) and Warner Bros. Discovery’s Max, Discovery+ and HBO linear (86 cents per hour).
“[T]his analysis gives credence to the idea that Netflix still has ample runway ahead to take additional price increases in the U.S. in the years ahead,” the analysts wrote.
“The Netflix flywheel is in full effect. Because Netflix has more subscribers to spread its content spending across, it can afford to spend more on content. Because it has more content, it drives better engagement, leading to more subscribers and possibly better pricing power in a virtuous cycle. This is the enduring power of Netflix’s first-mover advantage in streaming,” the MoffettNathanson analysts wrote.
Netflix is scheduled to release Q1 2025 earnings results on April 17 after market close. It will be the first quarter Netflix will no longer report subscriber numbers on a regular basis; the company says financial metrics like engagement and profitability better reflect its overall health and growth trajectory.
