Shares of Netflix Inc. rallied on Monday to topple the selloff in the broader stock market after a new Oppenheimer analyst covering the video streaming giant explained why it’s time for investors to come back.
rose 2.3% in premarket trade, while ES00 futures,
for the S&P 500 SPX,
fell 0.9%. It was the only component of SPDR Communication Services Select Sector traded on the XLC exchange,
which was gaining ground in view of the open.
Analyst Jason Helfstein assumed Netflix coverage and raised the rating to outperform. He set a $325 price target on the stock, which implied a roughly 35% upside from Friday’s close of $240.13.
Not only will launching a subscription plan at a lower price attract some first-time subscribers, but Helfstein believes there is a greater opportunity to re-engage those who previously discontinued the service.
“Ad-level traffic should accelerate subscriber growth, drive ARPU [average revenue per user] and slow stirring,” Helfstein wrote in a note to clients.
He also believes that Netflix will command a high cost per thousand (CPM) from advertisers, given that it has the highest viewership in the industry and as streaming continues to take share from TV.
Read also: Traditional TV is ‘walking a distinct precipice,’ says former Disney CEO Iger.
“[Netflix] draws a significant audience for marquee editions comparable to awards shows and major sporting events, suggesting the company can sell ads at CPMs well above the normal TV average,” Helfstein wrote. “Additionally, it could choose to release shows in conjunction with major advertisers’ product launches.”
He believes Netflix’s move to crack down on password sharing, its partnership with Microsoft Corp. MSFT,
on its ad-supported subscription program and a move into the gaming arena could provide a further boost to results and stock.
With Helfstein’s upgrade, 14 of 45 analysts surveyed by FactSet are bullish on Netflix, while 6 are bearish and 25 are neutral. At the end of 2021, 34 out of 47 analysts were bullish, 4 were bearish and 9 were neutral. The average price target for the stock has fallen to $244.91 from $681.79 over the same period.
Meanwhile, Netflix stock has been in decline in recent months as better-than-expected second-quarter results reported in July aided the recovery. That followed a hugely disappointing first-quarter report in April, in which the company said it lost subscribers for the first time since its inception.
read more: Netflix’s bull case has been ‘severely tested’, but now is the time to buy, Evercore says.
After plunging 72.4% year-to-date to a five-year closing low of $166.37 on May 11, the stock has soared 44.3% through Friday. By comparison, the communications services ETF is down 8.8% since May 11, and the S&P 500 has lost 1.6%.