Netflix Inc. (NFLX) stock will rise an average of 30% annually over the next five years, despite the likelihood of a bear market during that period, a trajectory that would boost the stock by nearly four-fold to near $1,000, according to MKM partners, per Barron’s.
“We think the stock has been victim of a risk-off environment since Q4 began,” wrote MKM Partners' Rob Sanderson in a note to clients on Monday. “We think that fundamentals and earnings potential remain as strong as ever and that macro-related weakness is creating an excellent buying opportunity.”
Netflix as Worldwide Consumer Staple
On the surface, the Stamford, Connecticut research and trading firm may seem optimistic considering that Netflix shares are down 34% off their 52-week high. Yet the fact is, even after falling deep into bear market territory, Netflix shares have risen five-fold in the past five years and a whopping 60-fold in 10 years.
Bulls are forecasting for more stellar growth ahead as the Los Gatos, California-based media giant dramatically expands its programming, spending a projected $13 billion on original content in 2018 in order to grab share from traditional rivals. Investment has been funneling towards grabbing talent from moviemakers to create more attractive programming for subscribers.
MKM Partners applauded Netflix for “showing that creative talent is free-agent talent and will migrate to the best platform for reach and monetization.” The firm sees “significant potential for value creation in these efforts.”
As more consumers globally buy its service and its offerings expand, Netflix has been viewed as able to raise prices in established markets as it disrupts new markets around the world. To many households, a Netflix subscription is viewed similar to a staple, because people can watch movies at home much more cheaply than going to a theater. The trend extends outside of the domestic market, with Netflix forecasting for 9.4 million global net subscriber additions in Q4, versus a 7.64 million consensus estimate and an addition of 6.96 million in Q3.
MKM Partners suggests investors are underestimating Netflix’s prospects for surging earnings growth through 2025. While shares have sharply outperformed the broader S&P 500’s 4.4% loss and the Nasdaq Composite Index’s 1.5% decline in 2018, Sanderson noted that it has been underperforming other growth stocks in the tech sector recently.
Sanderson’s 12-month price target on Netflix stock at $415 implies 52% upside from Tuesday.
What’s Next for Investors?
Not all are so upbeat on the on-demand entertainment behemoth. Bears include experts at NYU and elsewhere who suggest that Netflix's model is flawed. If a recession and bear market go too deep, the media industry disruptor could run into problems.