Why Netflix Stock Rallied Today
Key Points
One analyst set a new price target that implies 42% upside for Netflix.
The brokerage conducted customer surveys that point to growing engagement and retention.
Netflix stock is historically cheap.
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Shares of Netflix (NASDAQ: NFLX) charged sharply higher on Tuesday, surging as much as 4.7%. By the time the market closed, the stock was still up 3.8%.
The catalyst that propelled the streaming pioneer higher was bullish commentary from a Wall Street analyst.
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Survey says...
Evercore ISI analyst Kutgun Maral maintained his outperform rating on Netflix stock and increased his price target to $110. For those keeping score at home, that represents potential upside of 42% compared to Friday's closing price.
The analyst conducted consumer surveys and found that Netflix had increased its market penetration to 63% in the U.S. and 22% in Japan. The survey also uncovered greater intent among customers to maintain their subscriptions.
Sports and live programming are driving positive results in Japan, with 45% of recent subscriptions tied to Netflix's World Baseball Classic promotion. Moreover, 60% of users watched live programming during September, up from just 42% in March.
Netflix Clips -- the company's short-form video offering -- is reaching its target market, with 38% of U.S. respondents and 46% of Japanese respondents reporting that they use the feature.
These expanding offerings are gaining traction and are likely boosting engagement and driving greater retention, according to the analyst.
Since Netflix abandoned its bid late last year to acquire certain streaming and studio assets from Warner Bros. Discovery, the stock has been in a funk. Investors have been looking for assurances that Netflix can continue adding new customers organically while retaining existing subscribers. This survey seems to answer that question with a resounding "yes."
The stock remains 40% off its all-time high from last year, despite delivering robust sales and profit growth. And at 25 times earnings, it's well below its three-year average multiple of 43. This gives astute investors the opportunity to buy Netflix at a rare discount.
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Danny Vena, CPA has positions in Netflix. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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