Will Netflix's share price really hit Credit Suisse's $740 target?

Netflix’s [NFLX] share price has seen a near 21% gain over the past three month (through 19 October)  - and Wall Street thinks it could go higher. Several analysts have recently rated Netflix’s share price as a buy off the back of the enormous popularity of Squid Game, reports Barron’s.

As a dystopian vision where competitors play children’s games with some seriously high stakes for a chance at a big payout, Squid Game certainly stands out. Over 111m households have watched the show since its launch, becoming the streamer’s biggest break-out hit and topping the 82m households reached by period romp Bridgerton on its debut. Much of the show’s success has been down to word-of-mouth through social media.

Set in South Korea, Squid Game’s success is also testament to Netflix's international outreach and ability to turn shows created for a specific country into breakout hits with broad appeal - obvious examples include Spain’s Money Heist and France’s Lupin.

Some think Squid Games has been too successful. South Korea’s SK Broadband is planning to sue Netflix arguing that the increased traffic has led to more maintenance and network costs. Still, with the potential for more upside, we look at the latest targets for Netflix’s share price and ask if there’s any chance of them actually being hit.

Wall Street ups its rating on Netflix’s share price

Analysts have changed the narrative around Netflix, reports Barron’s, shifting the story from a company facing stiff competition to one where ‘content is still king’ and it wears the crown.

“We remain positive on the long-term position, though with strong stock performance since Q2 and the ‘Squid Game’ release, [we] would be more aggressive on any weakness” - William Power, Analyst, Baird

Truist has upped its target on Netflix’s share price from $600 to $690 - a 7.9% upside - off the streamer’s strong content slate, which should help drive subscriber numbers higher. Baird analyst William Power has also upped his price target on the stock from $650 to $680 for similar reasons.

“We had expected a stronger second-half content slate to benefit subscriber growth, which we believe is playing out,” wrote Power in a research note. “We remain positive on the long-term position, though with strong stock performance since Q2 and the ‘Squid Game’ release, [we] would be more aggressive on any weakness.”

Jefferies moved its Netflix share price target from $620 to $737 - a hefty 15% upside. Jefferies analyst Andrew Uerkwitz cites the acquisition of games developer Night School could open up an additional revenue stream. Even more bullish is Credit Suisse’s $740 target.

Does Netflix’s share price justify the high price targets?

Netflix’s share price is trading at a 48.54 forward price to earnings ratio. That suggests that expectations are for growth, but there is a danger the stock could be overstretched at that level.

Hitting Credit Suisse’s price target will depend on the streamer maintaining its growth story - something that’s tricky when you are the dominant player in an industry. Earnings for the full year 2021 are expected to come in at $10.46, growing to $12.88 a share in 2022. That’s up from earnings of $6.08 a share in 2020. Revenue is also growing and is expected to come in at $29.62bn in 2021, up 18.5% year-on-year, and $33.99bn in 2022, up 14.8% year-on-year.

The big driver for growth will be continuing the growth of subscriber numbers, revenue and earnings. After the streaming service providers released third-quarter earnings on Tuesday the share price took a 1% hit, and it remains to be seen whether it will be able to meet Credit Suisse’s target. However, as per Tuesday’s Q3 earnings announcement, the company does look primed to continue its sustained growth: the company was in line with revenue its target at $7.48 billion, and – crucially – well above subscription targets with 4.4 million new accounts against expectations of 3.84 million. The company expects to add 8.5 million subscribers in the fourth quarter.

For an in-depth review of what to expect from analysts in the wake of Netflix's third-quarter earnings announcement, read our earnings preview here.