Shares of Netflix (NASDAQ:NFLX) exploded in Wednesday trading and hit a new high of $384.24 after an analyst at Goldman Sachs upped his price target on the stock to $490, the highest price target on the stock on Wall Street. Previously the firm had a $390 price target on the stock.
Analyst Heath Terry of Goldman Sachs has lifted his price target to a 30% premium compared to current prices. The new price target is the highest target out of the 36 analysts who cover Netflix, according to FactSet data.
According to Terry, Netflix (NASDAQ:NFLX) is becoming a “global media phenomenon.” Terry believes that the streaming giant is on track to see meaningful positive cash flow in 2022. Last year the company had a negative free cash flow of $2.02 billion. Terry has forecast that cash burn will hit its peak this year.
Terry also believes that Netflix will add 32.5 million net subscribers next year while the Wall Street consensus is calling for just 26 million subscribers.
The analyst wrote, “While the widening gap between Netflix’s growing income statement profits and the increasing cash flow statement deficit has seemingly had little impact on the company’s valuation, we do believe that as the gap begins to reverse and Netflix’s cash flow inflects positively in the coming years, NFLX shares should benefit.”
“The additional $3 billion to $4 billion in cash investment into content is a crucial component of driving growth above consensus expectations over the next three to five years, solidifying Netflix’s lead ahead of competitive launches, reducing its reliance on outside content and eventually reaching significantly positive [free cash flow,],” Terry also wrote.
“We believe the growing content offering and expanding distribution ecosystem will continue to drive subscriber growth above consensus expectations,” the firm wrote.
“While our target multiple represents a clear premium relative to the sector, we believe it largely reflects Netflix’s long term subscriber and margin potential.”
Terry added, “We believe Netflix’s ability to spend significantly more on customer acquisition while still producing ~4pps of operating margin expansion for the full year, on our estimates, will allow the company to drive additional subscriber growth, particularly in markets where the company’s brand presence isn’t as strong as it is in the U.S.”
Netflix (NASDAQ:NFLX) saw $11.69 billion in sales in 2017 and revenue grew 32.4% year-over-year.
Shares (NASDAQ:NFLX) have been on a rocket in the last year and have seen gains of 145%.