Netflix Stock Price Forecast Raised to $630 at Morgan Stanley; $840 in Best Case Scenario

Morgan Stanley raised their stock price forecast on Netflix to $630 from $600, assigning an “Overweight” rating to the Internet television network’s stock and foresees short and long-term benefits to Netflix growth and earnings power due to the changes brought on by the COVID-19 pandemic.

The world’s leading streaming entertainment service company is set to report its third-quarter results on October 20. According to Zacks Research, Netflix forecasts Q3 earnings to be $2.09 per share, implying over 40% of year-over-year growth, but the Zacks consensus estimate was pegged at $2.12 per share. The Zacks consensus estimate for September quarter revenues was pegged at $6.38 billion, over 20% higher than a year earlier.

“Price increases as a lagging indicator… Our ‘Overweight’ thesis assumes Netflix has additional pricing power. We believe signals that Netflix looks for before raising prices are engagement growth and falling churn, trends that indicate an increase in “value” delivered to the consumer. Recent price increases in Australia and Canada, 2% and 4% of the estimated paid member base respectively, indicate to us that engagement levels and engagement growth rates are likely high and accelerating in these markets,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“We realize the 2019 rate adjustments led to slightly more elevated churn levels, particularly in the US, that sustained into subsequent quarters. However, we believe Netflix’s competitive moat is perhaps deeper than ever today. Production delays due to (the) COVID-19 have likely impacted its competitors more significantly than Netflix. Finally, given the size of the base business price increases create substantial long-term value.”

Netflix’s shares closed 2.05% lower at $530.79 on Friday; however, the stock is up over 60% so far this year.

Twenty-six analysts forecast the average price in 12 months at $564.83 with a high forecast of $670.00 and a low forecast of $220.00. The average price target represents a 6.41% increase from the last price of $530.79. From those 26, 19 analysts rated “Buy”, four rated “Hold” and three rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $840 under a bull scenario and $400 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Netflix had its price objective lifted by KeyCorp to $634 from $590. They currently have an overweight rating on the Internet television network’s stock.

Pivotal Research boosted their stock price forecast on shares of Netflix to $650 from $600 and gave the stock a buy rating. Loop Capital raised their price objective to $600 from $500 and gave the company a buy rating.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow Netflix (NFLX) to leverage content investments and drive margins,” Morgan Stanley’s Swinburne added.

“Higher global broadband penetration should increase the NFLX addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

The success of programming drives increased subscriber growth and pricing increases lead to revenue upside, driving – were highlighted by Morgan Stanley as two major downside risks.

Pricing increases drive elevated churn, increased competition drives higher pricing for exclusive content lowering margins, challenges in newer markets negatively impacts member growth expectations, were the major downside risks.

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