Shares of Netflix (NFLX 0.92%) fell as low as $162 last year but rocketed to as high as $396 recently. At the current share price, the stock is up 109% from its 52-week low last year.

Low expectations for subscriber growth led to a perfect setup for the rally. The service unleashed several releases in the second half of the year that contributed to a net subscriber increase of 2.41 million in the third quarter before accelerating those gains to 7.66 million to end the year. 

One Wall Street analyst sees more upside for the stock, as the company rolls out paid sharing and ad-supported streaming plans.

Near-term catalysts

Wells Fargo analyst Steven Cahall sees a scenario where the stock could trade as high as $560 per share based on a best-case scenario for revenue growth and earnings. Netflix would have to generate earnings of about $17 per share in 2024 and trade at a price-to-earnings (P/E) multiple of 34 to hit that share price. Netflix earned $9.95 of earnings per share in 2022, so where is the growth coming from?

The catalyst is Netflix's rollout of paid sharing for those viewers who are getting a free ride by sharing accounts with paying households.

Netflix initially announced the paid sharing initiative in the first quarter last year amid sharply decelerating growth in revenue and subscribers. Management estimated that over 100 million households, including 30 million in the U.S. and Canada, were sharing accounts. By comparison, there were 230 million paying subscribers in the fourth quarter of 2022.

Cahall sees over 20 million additional subscribers from the rollout of paid sharing. This would add up to $3 billion of additional revenue per year, or about 10% of Netflix's trailing revenue of $32 billion. 

That additional boost in subscriber growth would come on top of the normal growth Netflix would likely experience on its current base. Netflix is also improving revenue from rolling out an ad-supported viewing plan the company launched in November. 

Analysts seem to be basing their earnings growth estimates on margin upside from advertising revenue and higher revenue per user as Netflix expands paid sharing across its base.

Risks to consider

One challenge for Netflix going forward is market saturation in streaming. At over 200 million subscribers in a global market with an estimated 1.3 billion broadband households as of 2021, according to Statista, Netflix has reached a higher penetration of its addressable market opportunity, which will make it more challenging to keep growing. 

With so many new streaming services launching over the last few years from Paramount Global, Warner Bros. Discovery, Walt Disney, and other media outlets, it is more important than ever that Netflix produces compelling content to convince more households to join with so many choices.

But after adding over 10 million subscribers in the second half of 2022, it's clear people are voting with their wallet that Netflix has the best content selection. While management anticipates the rollout of paid sharing to cause abnormal growth patterns in the near term, the company expects revenue to accelerate throughout 2023.

How high can the stock go?

The consensus estimate has earnings per share coming in at $11.48 in 2023, before increasing to $14.38 next year. That's a 25% year-over-year increase. 

Using a P/E of 25, which is a small premium to the average stock's P/E of 22, Netflix stock would trade at $360, or only slightly higher than the current price. The stock would have to continue trading at its current P/E of about 34 for the stock to be worth $488 at the end of 2024.

I continue to hold shares because I believe Netflix's industry-leading margins, brand, and content library will allow the service to gain a greater share of the billion broadband households over the long term.

It's not too late to buy Netflix, but investors shouldn't expect to see the same explosive gains that they saw over the last year. Future returns will likely mirror the growth in Netflix's revenue and earnings.