Netflix: Here's why Wells Fargo raised the price target on the stock

Let’s bring in Stephen K Hall, Wells Fargo Senior Equity Analyst. Stephen has an overweight on Netflix, raised his target to 726 from 650. Steven, Happy Friday. Good to have you with us again. Thanks for having me on, Carl. So you’re still looking at revenue flywheels and and expanding margins. That’s the story. That is and you know I think flywheel is sometimes an overused phrase in our industry, but Netflix does have one in their ability to keep growing revenue through subscribers, advertising, pricing and then to keep spending more on content and to grow that content, spend a little less fast than they grow revenue. So that’s where everything drops through to profit and cash and that’s why we’re so bullish still on the stock. The one year performance has been stellar and that was run a reason we got at least one downgrade on the street today. When does valuation become a concern? Yeah. To me, I mean, I think if the PE ratio is massively outpacing the earnings growth, then that’s the red flag for us. You know, you mentioned our new target price, it’s based on 29 * B E We have a 30% EPS kegger. So we think those two are pretty fair. And stepping back from it, I mean, I think the other thing that that we see is that across the market, it’s so rare to find an industry leader that’s also earning compounding earnings at this level, if you look at Netflix’s share of TV time, share of streaming time, share of entertainment. They really are in a league of their own from a market share perspective. How should we feel about the ending of subscriber reporting? You know, on one hand it reminds me of like when Chinas youth unemployment numbers went after past 25%, they were so bad that they just stopped reporting them like is that is that the signal there? Because the subscriber numbers for Netflix this quarter we’re we’re strong. Yeah, I think it’s a great question, Sarah. And and I think that you know that Q1 result actually tells us a lot about what they’re thinking, which is if they’re doing this from a position of strength, they’re not trying to tell people that they’re worried about subscribers and that’s why they want to move away from the metric. I think they’re trying to move away from some of the short termism that has always been part of the stock when it’s been a net ad story and trying to focus on a little bit more of long term outlook because that’s how they they run the business. I cover a lot of stocks, very few of them could get away with changing that disclosure, but Netflix is doing it from this place of confidence and strength. So I don’t think the market is really too worried about it. Right. Yeah. We, we talked this morning about retailers for example, used to give monthly comps that kind of went away and and life went on. But fascinating story and an interesting quarter to dig in on if you get the transcript from last night. Steven, thanks. Good to see you. Thank you, Steven Cahall.