The successful execution of Netflix ‘s advertising-enabled subscription tier and paid sharing crackdown is among the major reasons Baird believes shares could trade at a price not reached in more than a year. Senior analyst Vikram Kesavabhotla upgraded the streaming stock to outperform and raised his price target by $160 per share to $500. Kesavabhotla’s new target implies the stock could rally 17% from Friday’s close to trade at a price not seen since early 2022. NFLX 5Y mountain Netflix over the past half decade “Our constructive stance is driven by increased confidence in the company’s execution around new initiatives (advertising/paid sharing) and a strengthening financial profile that should further improve investor sentiment over time,” Kesavabhotla said in a note to clients Sunday. “Near-term expectations seem better calibrated following the 2Q print — and in our view, the modest pullback has provided an attractive entry point into a strengthening long-term investment case,” he added. Kesavabhotla said he’s been encouraged by commentary showing the ad-supported tier is generating per-user economics above ad-free counterparts in the U.S. And he said that can only improve as the platform’s advertising infrastructure evolves, macro trends get better and international markets mature. He also called the early results from the crackdown on shared passwords “healthy,” noting revenue is up from pre-launch levels in each region while sign-ups exceed cancellations. Kesavabhotla also approved of the decision to remove the basic-yet-still-ad-free plan for new and returning users in key markets. And he said that management’s signals that it’s broader pricing philosophy has not changed indicates prices can be raised again. A firm survey shows Netflix is maintaining popularity among customers despite the changes. Kesavabhotla said upcoming momentum should further boost sentiment on Wall Street. Following its second-quarter earnings report , Kesavabhotla said Netflix is entering a “period of particular strength.” In this environment, revenue is set to significantly accelerate and the annual operating margin and free cash flow should continue growing. He said the company should have competitive advantages in the near-term as the industry grapples with disruptions to content production and keeps focus on profitability. Taken together, Kesavabhotla said these reasons help justify Netflix’s “rich” valuation. — CNBC”s Michael Bloom contributed to this report
