Netflix stock has been struggling for direction lately -- but it could be due another rally as excitement builds about the video streamer's ad-supported tier, according to Seaport Research Partners analyst David Joyce.
Joyce upgraded shares to Buy from Neutral late Monday, while hiking his price target to $1,385 from $1,230. The new target price implies that Netflix can jump about 19% from its level as of Monday's close.
The stock started the year on a tear, propelling the streamer to a half-a-trillion dollar valuation, but has slipped about 10% over the past three months as investors digested the rally.
Joyce said he would be a buyer heading into Netflix's third-quarter earnings on Oct. 21, as he raised his estimates for both ad revenue and operating income.
Data from Nielsen suggests that Netflix now only trails Disney and Alphabet's YouTube TV when it comes to TV market share, the analyst noted.
That should help the streamer to rack up more money from ad sales, Joyce said. He's expecting advertising revenue to double to $3.1 billion this year, then grow 48% annually to hit $16 billion by the end of 2030.
The worldwide success of projects like Squid Game and KPop Demon Hunters should also help the company to grow its global user base, Joyce added. As a result, it can spread its content spend across a wider range of customers, which should boost its margins. Joyce expects Netflix's operating income margins to top 32% this year, ahead of the 29.5% it's previously guided for, and then rise to just under 41% by 2030.
Netflix shares ticked up 1% to $1,175 in premarket trading on Tuesday. Futures tracking the S&P 500 were flat.
Joyce isn't alone in being bullish on shares. Of the 54 analysts who cover the stock, 32 rate it a Buy, according to FactSet data. Wall Street's consensus price target of $1,373 implies shares can climb 18% from their current level.
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