Netflix stock closes at all-time high as investors praise earnings. But valuation concerns remain.
Netflix ( NFLX ) stock closed Monday at a record high just above $772 as the streamer continued positive momentum from its expected quarterly results last week.
Netflix beat across every major financial metric in its third-quarter results last week, and sales estimates for the current quarter came in ahead of Wall Street expectations. On Friday, the streaming giant marked just below the previous record of $764.
“In our view, Netflix is one of the best-positioned companies in media and has several growth drivers,” Bank of America analyst Jessica Reif Ehrlich wrote in a note after the report, citing the company's growing advertising levels with its ventures into gaming, sports, and live events. .
The analyst reiterated his buy rating on the stock and raised his price target to $800 from the previous $740.
But with the stock up nearly 60% since the start of the year, its lofty valuation has caused some concern.
Investors have rewarded Netflix for diversifying its revenue streams, with advertising levels accounting for more than 50% of sign-ups in countries where it is offered.
The company's top-line growth has benefited not only from advertising but also from the streamer's crackdown on password sharing, which analysts say is almost complete. While the end of the crackdown should lead to fewer customers than in the previous quarter, future price increases could offset the slowdown.
“Revenue growth in 2025 and beyond will have to be a function of slower customer growth and a return to a more normal pricing cadence as the company has essentially worked its way through. [password-sharing crackdown]Deutsche Bank analyst Brian Kraft said on Friday
Wall Street analysts noted that the price hike would be a positive catalyst for the stock in the near term, citing the company's pricing power relative to competitors.
“Given Netflix's low cost per watch hour, we see an opportunity for the firm to grow its US prices by 12% in 2025,” Citi analyst Jason Bazinet said in a note ahead of the report.
Netflix co-CEO Greg Peters said the company will continue to “evolve” its pricing tiers, but that it “loves”[s] Low price points and increased accessibility that come with our advertising plan,” priced at $6.99 in the US.
Still, Netflix recently revealed that year-over-year engagement levels came in fairly flat — a potential headwind in terms of its ability to raise prices.
“With most of the subscriber growth seemingly representing improved monetization of an existing (and not growing) user base, we question whether the momentum can continue into next year,” Moffett Nathanson analyst Robert Fishman wrote in a note to clients after the report. “Netflix's stock is massively expensive for a company whose own guidance implies declining revenue in 2025.” Last week, Netflix said its revenue growth is expected to fall between 11% and 13% in 2025, down from an expected 15% this year.
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