Netflix, Inc. (NASDAQ:NFLX) snagged its very first Academy Award over the weekend after years of nominations without wins. This year, Netflix shows were nominated for eight Oscars, and four of those nominations were for Mudbound. Analysts from at least two firms have boosted their price target for Netflix stock, and one of them feels a higher multiple is in order.
Netflix won the Oscar for best documentary feature for Icarus, which tells the story of doping among Russian athletes. The film focuses on Dr. Grigory Rodchenkov, the whistleblower who helped put a stop to the Russian government’s doping practices among Olympic athletes. It was the first feature film from Netflix to win an Oscar, and it’s widely seen as a major milestone because the company doesn’t allow its films to be shown in theaters first.
Some see Netflix’s first Oscar win as a major stepping stone toward the legitimization of its original content. By winning such awards, the company shows bigger celebrities that it’s able to play against the major production studies and come out on top. More and more stars are taking Netflix seriously as a producer, and being able to attract well-known names goes a long way toward producing Oscar-winning content.
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Macquarie analyst Tim Nollen lifted his price target for Netflix stock from $275 to $330, while UBS analysts raised their target from $290 to $345 per share.
Nollen believes a higher Netflix stock multiple is warranted due to the company’s earnings power. Original movies like Icarus and the growing number of original TV shows are eating up a lot of cash, and many bears have been concerned about it. However, Nollen isn’t very worried about the cash burn because it’s mostly tied to spending on original content and also amortization.
He noted that the streaming firm is planning about 700 original shows and films for this year, so its scale continues to grow, which in turn is raising its cash burn even more. He added that the whole process can take about two years until amortization of the programming begins. At that point, amortization is accelerated compared to third-party content that has been licensing.
Nollen also highlighted a few other drivers of growth for Netflix and its stock. For example, the company picked up tax benefits last year and expects a favorable tax position this year as well.
He also sees the proliferation of 4K TVs as important for Netflix, as it runs both ways. Viewers who spend more time watching Netflix shows and content tend to be more interested in 4K TVs, but the company also is benefitting from this growing trend. He explained that Netflix offers a 4K pricing plan for $14 per month in the U.S., which is higher than the $10 in average revenue per user it earned monthly in 2017. Nollen expects Netflix’s earnings power to rise on higher revenues driven by the more expensive 4K price plan.
Another major trend he sees contributing to Netflix’s earnings power is improvements in broadband technology around the world. He explained that as the company partners with TV companies and telcos around the globe, its subscriber base grows. He also believes Netflix will benefit from the government subsidies offered in many countries that are expanding access to high-speed internet.
Netflix stock surged by more than 3% right out of the gate on Monday, touching a new high of $310.95 per share and continuing to climb. Year-to-date, Netflix stock has tacked more than $100 onto its price, bringing its market capitalization to nearly $135 billion.