Netflix stock looks attractive following its "modest pullback" after second-quarter earnings, Baird analysts said as they turned bullish on the streaming giant.
The shares fell 8.4% Thursday, and a further 2.3% Friday after the streaming company's second-quarter revenue came in below expectations, and guidance for the third-quarter also fell short of estimates. But it did post a surprise 5.89 million jump in subscribers.
Baird analysts said they now have increased confidence in Netflix's (ticker: NFLX) execution around new initiatives such as ad-supported plans and its crackdown on password sharing. They upgraded the stock to Outperform from Neutral and said it could hit $500, implying a 17% upside to Friday's closing price.
"Near-term expectations seem better calibrated following the second quarter print -- and in our view, the modest pullback has provided an attractive entry point into a strengthening long-term investment case," Baird analyst Vikram Kesavabhotla said.
He said that Netflix was about to enter "a period of particular strength, " including significant revenue acceleration in the fourth quarter of 2023 and in 2024 due to the benefits of its paid sharing plan and advertising models.
The company also has competitive advantages in the near-term, he said, noting that Netflix is relatively better positioned to navigate disruption caused by the writers and actors strikes, due to its extensive library and international exposure.
"Valuation is admittedly rich, but we think is warranted given the underlying momentum and unique qualities of the business," Kesavabhotla added.
Netflix stock has risen 45% so far in 2023, but Wall Street is largely split over whether it can climb further. Analysts covering the stock have an average price target of $458.74, implying an 8.5% upside to Monday's price, while 52% rate the shares as Buy, and 41% have a Hold rating.
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