Investing.com -- MoffettNathanson upgraded Netflix (NASDAQ:NFLX) to Buy from Neutral and raised its price target by $250 to $1,100 in a note Monday.
The firm cited the company's ability to "better monetize its engagement" and unlock new revenue streams.
The firm believes Netflix has already "won the streaming wars" but sees further growth ahead.
"Because Netflix has more subscribers to spread its content spending across, it can afford to spend more on content," analysts wrote. This cycle "drives better engagement, leading to more subscribers and possibly better pricing power."
One of the biggest drivers of Netflix’s future growth, according to MoffettNathanson, is its ad-supported tier.
The firm sees this tier as a "lower-cost option" that expands Netflix’s total addressable market while providing "a dual revenue stream model with the addition of advertising."
The firm forecasts Netflix will generate over $6 billion in ad revenue by 2027 and nearly $10 billion by 2030.
MoffettNathanson also sees "lots of runway ahead" for Netflix’s profitability, estimating that "margin expansion of at least +200 bps per year" could bring operating margins to 40% by 2030, with room to grow further.
Despite past concerns about subscriber saturation, analysts now believe Netflix "still appears to be underearning relative to its engagement" and that "there is a consumer surplus to price into going forward."
The firm values Netflix at 29.5x 2027 estimated earnings per share, arguing that its "updated valuation approach appropriately captures this growth."
The combination of subscription growth, an accelerating advertising business, and sustained margin expansion led MoffettNathanson to "raise our estimates with greater confidence in the margin expansion story."
