The holiday season is a time for deep reflection.
And for me this year, that has meant reflecting on some of my favorite stocks and leaders to follow.
Netflix (NFLX) has come to the forefront of my mind as the year winds down, in part after seeing Beyoncé ride out on a majestic white horse during one of Netflix’s Christmas Day football games. Legend.
“The game was a home run as far as they’re concerned,” Manhattan Venture Partners head of research Santosh Rao said on Yahoo Finance’s Morning Brief (video above). “I think this was a great home run for the ad business that they have.”
Netflix hosted its first two NFL games that day, hot on the heels of the glitchy — but still enjoyable to watch — Mike Tyson vs. Jake Paul boxing spectacle in November.
The other reason Netflix is on my mind is because the hotly anticipated Season 2 of “Squid Game” premiered on Thursday, and the characters in the pink jumpsuits and black face masks are dominating my X feed. The second installment has gotten mixed reviews on Rotten Tomatoes, but people still tuned in en masse.
Doing a little analysis in the wake of these events, it looks like Wall Street is still too bearish on Netflix — even with the stock up 86% year to date. Perhaps this group thinks Netflix is that young streaming company from years ago, burning money and raising debt to fund content investments.
Here is the bearishness I am seeing in the numbers, compliments of data from the Yahoo Finance platform:
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The average sell-side analyst price target on Netflix is $838, 10% below current price levels. This is totally out of whack with a company that has demolished analyst profit forecasts at every stop in 2024.
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44% of sell-side analysts rate the stock at Underperform or Sell.
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The average analyst earnings per share estimate for 2025 models Netflix only posting 20% earnings growth.
The reality is that Netflix looks positioned for another monster year in 2025, which may win over more Wall Street skeptics and support another push higher in stock price.
Netflix has not only arrived on the live sports scene — it has smashed the wall down.
This likely means two things: First, the streaming movement around live events will accelerate further as legacy media continues to buckle and cut back more, and second, Netflix’s ad dollars are locked in on a significantly higher trajectory.
Just look at these numbers.
More than 200 countries tuned in at some point during the Chiefs vs. Steelers game, according to NFL Media data. The game is the second-most-popular live title on Netflix to date. Additionally, 60 million households watched the Tyson vs. Paul fight.
These are huge numbers that validate Netflix’s investments in live sports — which includes the debut of WWE in January.
“Given the success of the Tyson/Paul fight we expect Netflix to accelerate its offerings of ‘eventized’ live programming, which further enhances Netflix’s ability to offer households regular compelling content (juiced by the fact their competitors are now selling previously exclusive content to Netflix) = likely lower subscriber churn and greater ability to take price,” Pivotal Research analyst Jeffrey Wlodarczak wrote.
Wlodarczak is Wall Street’s biggest Netflix bull, with a $1,100 price target on the stock.
Wlodarczak’s call-out of price increases is important. In October, Netflix raised prices for basic and premium services by $2 and $3, respectively. The hikes will likely enhance sales and profits in 2025.
With the live sports and events push underway (including a deal to broadcast the FIFA Women’s World Cup in 2027 and 2031) and compelling traditional Netflix content such as “Squid Game” being churned out, it’s inevitable the company raises prices again within the next 12 to 18 months.
See more: Why Disney doesn’t want to sell its TV network
That will only enhance Netflix’s impressive free cash flow story.
Netflix will haul in close to $7 billion in free cash flow this year, according to analyst estimates. Pivotal’s Wlodarczak thinks Netflix’s free cash flow will reach $23.5 billion by 2030.
Free cash flow is operating cash flow minus capital expenditures. A company hits the free cash flow mark by being profitable and prudently investing those profits into “stuff” like plants and equipment. The cash left over could then be used to further bolster the total return potential for investors by way of stock buybacks or dividend increases.
Recall that from 2015 to 2019, Netflix had a negative cash flow of $10.5 billion. The company went free cash flow positive in 2020 with $1.9 billion in free cash as the COVID-19 pandemic fueled bumper profits, followed by a $132 million free cash outflow in 2021.
But those days are over. Last year, the company brought in $6.9 billion in free cash after reporting $1.6 billion in free cash flow in 2022.
And Netflix’s free cash flow build will only allow it to feed its content flywheel at the same time that legacy media continues cutbacks. This is how competitive moats are built.
In the end, Netflix could conceivably generate north of $25 in earnings per share next year — well ahead of current analyst estimates of about $23.81. Slap a premium price-earnings multiple on the stock of 40 times (it’s currently at 38 times), and Netflix could have a path to trading above $1,000 a share in 2025.
“I think [the stock is still undervalued] absolutely because there’s still a long runway ahead,” Rao said. “They’re just getting into live sports, and there are so many other live sports they can get into.”
“They’re going to pull people into their ecosystem,” Rao continued, pointing to cricket and soccer as other opportunities for Netflix live sports. “So the [subscriber] growth is going to be strong. To a large extent, it’s priced in, but there is a lot more to come ahead because they are the only game in town in terms of excellent streaming services and the broad breadth of offerings.”
Rao sees at least a 15% upside left in Netflix shares.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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