After Netflix’s success with advertising-supported subscriptions, bulls are wagering the video-streaming giant’s efforts to foray into live events and sports will drive the next leg of stock price gains.
It would be another example of how apeing the traditional TV model is paying off for the US$280-billion company. Moving into the kind of programming that has historically been the purview of linear television could well be the catalyst that drives the stock back to the record peaks of 2021.
“When you have the eyeballs, you control the pricing, and just think of the pricing power Netflix can exert for ads around sports and anything else people will want to watch as it happens,” said Eric Clark, portfolio manager at Accuvest Global Advisors. “We do see it as another growth lever.”
Much of the rebound — up 34% year-to-date — reflects Netflix’s success in reassuring investors about its ability to keep growing, even in mature markets. A crackdown on password sharing contributed to a post-Covid rebound in subscribers, and the company is finding success with its ad tier. Netflix said last month it had 40 million monthly active users of its ad-supported plan, from five million a year ago.
Adding sports and more live events is part of this plan. Having already aired the popular The Roast of Tom Brady, Netflix will show a boxing event between Jake Paul and Mike Tyson. It will air two US National Football League games this Christmas, and it has bought exclusive rights to Raw and other programming from World Wrestling Entertainment.
Sports have become a major area of investment for other streaming services, too. Amazon.com is reportedly nearing a deal to add a mix of regular season and playoff games from the US National Basketball Association to its Prime service. Sports — including the Olympics — will help NBC’s Peacock stand out, and Walt Disney Co will spend at least $12.2-billion on sports in 2026.
‘Default choice’
Wall Street has embraced Netflix’s push. The Tyson-Paul event “could be the most watched boxing match ever, given ease of access and Netflix’s large global subscriber base”, JPMorgan Chase & Co reckons, predicting the match will attract more advertising dollars.
JPMorgan analyst Doug Anmuth has an overweight recommendation on the stock, seeing the diverse range of offerings among the reasons why Netflix could become the “default choice” for viewers to consume TV, film and other content.
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The consensus for the company’s net full-year earnings has risen 7.1% over the past three months, while revenue estimates are up just 0.5%.
There are reasons for caution, including the disappointing forecasts provided by the company when it reported in April. It also doesn’t scream as the bargain it did in its post-Covid low. At 32x estimated earnings, the stock trades at a discount to its five-year average near 40x, yet that’s more than double its 2022 low. The Nasdaq 100 Index trades at a multiple of nearly 26x.
Fewer than 70% of the analysts tracked by Bloomberg recommend buying the stock, which is slightly above the average price target.
Cotton Swindell, senior portfolio manager for Adams Diversified Equity Fund, owns the stock and sees “a lot of reasons to be comfortable with Netflix”, even though he does not expect live events and sports to result in immediate bumper growth. “The question is whether growth is strong enough to support the valuation, and I say yes,” he said. — (c) 2024 Bloomberg LP