The stock of Netflix (NASDAQ:NFLX) has been one of the undisputed winners this year, having jumped 56% so far in 2020, but will surge to new all-time highs over the course of the coming year.
So says Pivotal Research analyst Jeffrey Wlodarczak. On Wednesday, Wlodarczak raised his price target from $600 to $650, a high among the analysts who cover Netflix, while maintaining his buy rating on the stock. His new target represents potential gains for investors of about 28% over the closing price on Monday, roughly $506.
Wlodarczak cited the "virtuous cycle" as the catalyst to drive Netflix's growth. Current subscribers are helping finance the company's spending on new programming, which ultimately brings in new paying customers. This ongoing cycle will help Netflix maintain its position "as the dominant subscription-video-on-demand player for the foreseeable future," Wlodarczak wrote in a note to clients.
He also highlighted Netflix's unrivaled pricing power as an important component of the company's success. "We expect further material price increases, while also still substantial increases in subscriber totals, and eventually a rapid expansion in [Netflix's] profitability reaching an ultimate about 35% [profit] margin by 2026," he said.
Will Netflix's stock price ultimately hit $650? The evidence suggests that Wlodarczak's thinking is right on the money. Streaming has seen greater adoption since the onset of the pandemic, with Netflix gaining nearly as many subscribers through the first half of 2020 as it did all of last year.
And with many of the company's production facilities temporarily shuttered, Netflix's net income surged higher and its negative cash flow turned positive. This helps buttress the argument that the tech giant will be able to rapidly increase its profits and positive cash flow once it decides to slow the rate of its content creation.