What happened
Shares of Netflix (NFLX 4.17%) were up 7% as of 12:57 p.m. ET on Thursday after receiving positive comments from one Wall Street analyst.
Evercore ISI analyst Mark Mahaney likes the stock after conducting research on the streaming platform's opportunities to pad revenue with its upcoming ad-supported subscription plan and efforts to end password sharing. Mahaney upgraded the stock to a buy with a $300 near-term price target.
Netflix shares have been hammered over subscriber losses to start the year and are down 60% year to date, but new catalysts could bring hope for a turnaround.
So what
There are mixed opinions on Wall Street about Netflix's future. The Evercore upgrade comes one day after Benchmark analyst Matthew Harrigan reiterated his sell rating on the stock. Harrigan's rationale is that Netflix has unrealistic expectations for ad pricing, given the company's lack of expertise, and of course, the near-term uncertainty in a weak advertising market.
However, the stock's rise today indicates investors agree more with Mahaney's analysis. Indeed, he appears to take a longer-term view of the company's prospects, which ultimately determines how a stock performs.
Through 2024, Mahaney sees the extra ad revenue boosting Netflix's margins and adding about $2 billion of incremental revenue. He sees another $500 million to $1 billion of incremental growth from management's plan to end password sharing, forcing more users to pay up.
Now what
Netflix and other leading streaming service stocks have been discounted to the point that any incremental revenue growth opportunity is good news. If near-term catalysts boost margins, that's even better.
The stock's current valuation of 23 times expected earnings still prices in the expectation for growth, so the company needs to turn its subscriber losses into gains quickly. Netflix will announce third-quarter earnings results on Oct. 18. Management expects to report a subscriber increase of 1 million, which would be its first gain since the fourth quarter of 2021.
