Following its success with ad-supported subscriptions, Netflix Inc. (NASDAQ:NFLX) is looking to sports and live events to fuel the next phase of its stock price growth. This strategy, reminiscent of traditional TV models, could help the $280 billion company return to its record highs from 2021.
“When you have the viewership, you control the pricing power, especially for ads around live sports and other events,” said Eric Clark, portfolio manager at Accuvest Global Advisors. “We see this as another avenue for growth.”
Despite a 0.5% dip in shares on Thursday, Netflix has rebounded by 33% year-to-date, thanks to investor confidence in its growth potential. The company’s crackdown on password sharing has contributed to a post-COVID surge in subscribers. Netflix’s ad-supported plan now boasts 40 million monthly active users, a significant increase from 5 million a year ago.
Netflix is expanding into sports and live events as part of its growth strategy. It has already aired The Roast of Tom Brady and plans to show a boxing match between Jake Paul and Mike Tyson. This Christmas, Netflix will broadcast two National Football League games and has secured exclusive rights to content from World Wrestling Entertainment.
Other streaming services are also investing heavily in sports. Amazon.com Inc. (NASDAQ:AMZN) is reportedly close to securing a deal to stream NBA games on Prime. NBC’s Peacock and Walt Disney Co. (NYSE:DIS) are investing significantly in sports, with Disney projected to spend at least $12.2 billion on sports in 2026.
Wall Street is supportive of Netflix’s new direction. JPMorgan Chase & Co. believes the Tyson-Paul fight could be one of the most watched boxing matches ever, given Netflix’s extensive global subscriber base. JPMorgan analyst Doug Anmuth has an overweight rating on Netflix, citing its diverse content offerings as a key advantage.
Over the past three months, consensus estimates for Netflix’s full-year earnings have risen by 7.1%, while revenue estimates have increased by 0.5%. However, caution is advised due to the company’s conservative forecasts in April and its current valuation, which is not as attractive as its post-COVID lows. Netflix trades at 32 times estimated earnings, compared to its five-year average of 40 times.
Approximately 70% of analysts tracked by Bloomberg recommend buying Netflix stock, aligning with the average price target.
Cotton Swindell, senior portfolio manager for Adams Diversified Equity Fund, owns Netflix shares and is optimistic about the company’s prospects. He noted, “There are many reasons to be confident in Netflix, even if live events and sports do not lead to immediate substantial growth. The key is whether the growth justifies the valuation, and I believe it does.”
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