By Senad Karaahmetovic
A Citi analyst has reiterated his bullish stance on Netflix (NASDAQ:) despite the generally bearish sentiment on SVOD stocks.
Investors are staying away from Netflix and other SVOD stocks amid the struggle to add subs. However, the analyst reminds investors that “Hollywood has a wide array of levers – ad tiers, bundling, and windowing – to maximize revenues.”
If Netflix can pursue all these “tactics,” it could see its shares hit $335 at 18x FCF. Similarly, Disney (NYSE:) shares could add $5 a share.
“We expect SVOD sentiment to improve and maintain our Buy rating on both Netflix and Disney. But Netflix is our preferred way to express our bullish view on SVOD,” the analyst said in a client note.
Netflix is the preferred stock as it has more opportunities to improve its FCF generation compared to Disney, as:
1) Disney already sells advertising on Hulu and ESPN+,
2) Netflix’s viewership per user is greater than Disney’s, allowing Netflix to lower prices more aggressively on the ad tier,
3) The Disney+ ad tier will have a lower ad load, limiting discounts on retail ARPUs,
4) Netflix may have opportunities to release films theatrically and/or license produced content. Disney, of course, already pursues these tactics.
Along these lines, the analyst raised the price target to $305 from $275.