Despite near-term volatility related to the coronavirus, Netflix Inc (NASDAQ: NFLX) is still winning buyers.
The Netflix Rating
The Netflix Thesis
Their bullish call is based on three factors.
First is an underappreciated addressable market with potential to sustain double-digit subscription growth. Jefferies expects subscriber numbers to drive 18% compound annual revenue growth through 2023 — and that’s with just 28% international penetration.
“Importantly, our revenue growth assumes a 15% subscriber CAGR and just a 3% ARPU [average revenue per user] CAGR, mitigating the bear thesis that sizable price hikes are necessary,” the analysts wrote in a note.
Second, margins continue to improve, which bodes well for free cash flow.
“We believe NFLX will soon reach sustained FCF profitability, in which it will be able to self-fund content and become less reliant on tapping the capital markets,” they wrote, forecasting more than $10 billion in FCF by 2026.
Third, Netflix has demonstrated its capacity to thrive in an evolving market and retain first-mover advantage with a number of features. According to Jefferies, the threat of competition to subscriber growth and pricing power is exaggerated.
NFLX Price Action
At the time of publication, Netflix shares traded around $438.34.