It's been a rough year for Netflix (NFLX 0.91%) investors. Things could get better in 2023. The world's leading premium streaming video service was on the receiving end of a rare double analyst upgrade on Thursday. Kenneth Leon at CFRA is boosting his rating on Netflix stock from sell to buy. He's also jacking up his price target from $225 to $310.
Leon believes the scalable moat that Netflix has amassed in streaming over the past 15 years will be difficult to cross. Netflix is a rare profitable player in the realm of premium streaming video. It will be hard for deficit-riddled rivals to catch up in this climate where investors aren't patient with red ink.
Netflix continues to have its finger on the pulse of trending shows and films. It's a hit factory, and the success of its content catalog should keep churn in check. The recently introduced cheaper ad-supported tier and a crackdown on account sharing should keep subscriber counts growing in the near future. With the stock losing more than half of its value -- down 54% in 2022 with two trading days to go -- it's encouraging to see that the fundamentals are at least moving in the right direction.
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Peeling back the layers of this glass onion
There's a lot to like when it comes to Netflix heading into 2023. It's coming off a blowout quarter, entertaining a record 223 million homes worldwide as of the end of September. A lot of consumer-facing services should be nervous heading into an iffy new year with inflation rising, consumer confidence dwindling, and recessionary fears growing -- but Netflix is built for pockets of hunkering down.
Netflix has thrived through economic lulls. It costs less per month than what many people pay for a single movie screening. It's been recession-tested before. It was one of the few stocks to actually rise in 2008 during the subprime lending crisis. The new option to pay 30% less for a plan that includes ads will make Netflix that much more attractive if families need to pare back their spending.
NASDAQ: NFLX
Key Data Points
Netflix claims that it will make back that 30% difference with the revenue it generates from those ads. That thesis will undeniably be difficult to realize in an economic downturn with marketers spending less to reach viewers, but Netflix should be a top draw for advertisers looking to reach the platform's historically elusive audience.
Wall Street isn't modeling a lot of growth at Netflix in 2023. Analysts see revenue growth decelerating to a 7% gain with a mere 1% uptick in earnings per share. The single-digit growth projections aren't as bad as they seem. Netflix has topped Wall Street profit targets with ease over the past year, coming through with double-digit percentage beats in three of the past four quarters. Revenue growth also seems conservative in light of the value proposition of the new advertising-supported plan and how the tightening of account-sharing controls should lead to many "families" setting up individual subscriptions for access.
The biggest selling point for Netflix in 2023 is that it was a point of selling this year. How did Netflix lose more than half of its value in 2022? Its proprietary content continues to be the most streamed series and films. Its audience has been able to grow through a half-dozen pricing increases over the past decade, and now it's providing a cheaper way to stay close to the trending entertainment that everyone is talking about. Netflix is still the undisputed king of streaming media stocks. It was a market laggard in 2022, but the ingredients are in place for investors to Netflix and thrill in 2023.
