Netflix rockets as earnings highlight streaming wars dominance

Netflix soared 10% on Wednesday as its blowout subscriber growth cemented investor confidence the company has won the streaming wars with its password-sharing crackdown and a strong content slate.

The streaming pioneer was set to increase its market value by about $20bn, if premarket gains hold, based on its share price of $542 before the bell.

The company said on Tuesday 13.1-million signed up for its service in the fourth quarter, marking its best growth since the start of the pandemic and handily beating estimates of 8.97-million subscribers.

“Netflix has already won the streaming wars and this type of strong result/guidance, especially relative to its streaming peers, is what winning looks like,” said Pivotal Research Group analyst Jeffrey Wlodarczak.

Wlodarczak raised his price target on the stock to a Wall Street high of $700. At least six other analysts also raised their targets, pushing the median view to $515.25, nearly 5% higher than the last closing price of Netflix shares.

The company’s stock commands a premium relative to rivals. It trades at nearly 30 times its 12-month forward earnings, compared with Walt Disney’s 20.41, according to LSEG data.

Some analysts believe the valuation could be justified as the ongoing push for profitability at other streaming firms will force them to license more titles to Netflix, which may help Netflix drive up subscriber growth and average revenue per user.

The company highlighted strong demand for licensed titles such as Young Sheldon in its earnings call on Tuesday. Its slate of shows in the fourth quarter also included the final season of the The Crown and David Fincher's film The Killer.

The company plans to spend as much as $17bn on content this year, after last year’s dual Hollywood strikes by actors and writers disrupted some productions.

The company is also ramping up its bets on live programming and unveiled a more than $5bn rights deal on Tuesday to bring World Wrestling Entertainment’s Raw and some other programming exclusively to its service in January 2025.

“It [original content] doesn’t come cheap, and some would balk at Netflix’s annual content budget, but it is this investment that keeps Netflix’s frame gilded,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown. 

Reuters