Evercore ISI upgrades Netflix, says ad-supported subscriber tier can boost stock by more than 30%

Published Thu, Sep 15 20225:57 AM EDT

Evercore ISI said it's time for Netflix shares to shine once again after a monthslong rout. Analyst Mark Mahaney upgraded Netflix to outperform from in line, saying in a note to clients Wednesday that Wall Street is underappreciating the growth opportunities from the company's ad-supported service and its password-sharing initiative. Mahaney also hiked his its price target on the streaming stock to $300 a share, which represents an upside of roughly 34% from Wednesday's close. "We believe these opportunities, especially the ad-supported service, constitute Growth Curve Initiatives (GCIs)—catalysts that can drive a material reacceleration in revenue growth," he wrote. "We don't believe these opportunities are factored into current Street estimates or into NFLX's current valuation. Hence the upgrade." Mahaney called Netflix's upcoming ad-supported tier slated to roll out in the coming months "one of the biggest catalysts" for the internet sector over the next year. He expects the initiative to lure back at least 20% of churned subscribers, which could mean roughly 10 million incremental subscriber net additions and $1 billion to $2 billion in revenue consistently by 2024. Meanwhile, Netflix's password-sharing pricing plans could potentially contribute $500 million to $1 billion in incremental revenue, according to the firm's calculations. "At a high level, the core Netflix Long thesis has been severely tested over the last nine months, but we believe the global streaming market remains attractive, Netflix is the proven market leader, its management team is highly experienced and has a strong (tho not spotless) vision & execution record," Mahaney said. Shares of Netflix have come under pressure in recent months as the company faces rising competition in the streaming space and a slowdown in subscriber growth, with the streamer reporting its first subscriber loss in more than a decade in April. Netflix's stock has slumped about 63% this year and sits 68% off its 52-week highs. — CNBC's Michael Bloom contributed reporting