Netflix Price Target Raised to Street-high $650 by Pivotal
Pivotal Research is now the biggest Netflix bull on Wall Street. The firm raised its price target by $50 a share to $650, saying the video streaming company is likely to remain as the dominant global SVOD player for the foreseeable future.
A virtuous cycle: Pivotal emphasizes that Netflix’s leadership position, specifically its large subscriber base, is the catalyst for optimizing other key business metrics. The larger their subscriber base grows, the more they can spend on original content, ultimately resulting in a larger target market, lower subscriber churn, and the ability to raise prices. Netflix benefited greatly from Covid-19 stay-at-home orders in the first half of 2020, with net subscribers additions rising 110% year-over-year to nearly 26 million in that period.
Price increases coming soon? Pivotal expects further material price increases as soon as January 2021. Based on a near-term $1-$2 price increase in the UCAN or EMEA markets, Netflix could add $500 million to $1 billion to its fiscal year 2021 revenue, according to Jefferies analyst Alex Giaimo. Netflix’s last major U.S. price change came in January 2019.
Gen-Z glued to the screen: Netflix is the most popular video streaming platform among teens. On average, teens spend 34% of their daily video consumption on Netflix, according to a recent Piper Sandler survey. That’s up slightly from 33% in the firm’s Spring 2020 survey. Netflix is the top platform, just ahead of YouTube at 32%. Meanwhile, Amazon Prime Video has been flat with just a 3% share of consumption.
The takeaway: Despite near-term concerns over modest guidance from the company, fallout from the controversial “Cuties” film, and signs of weak app engagement, Netflix remains the go-to video streaming platform for consumers, and Wall Street maintains confidence that cord-cutting trends and investment in original content will lead to higher prices, more subscribers, and expanded profitability.
