Netflix rises as Wedbush upgrades on potential for Q2 beat, sees 50% upside

May 16, 2022 7:54 AM ETNetflix, Inc. (NFLX)By: Chris Ciaccia, SA News Editor10 Comments

Netflix (NASDAQ:NFLX) shares rose on Monday as investment firm Wedbush upgraded the streaming giant, noting it has the potential for beating second-quarter expectations, due in part to how it changed its release schedule.

Analyst Michael Pachter raised the rating to outperform from neutral and introduced a per-share price target of $280, noting that the staggered release date of Ozark should help drive subscriber growth.

"While it is possible that the company will once again issue downbeat guidance for Q3, we think that the staggered release date for Stranger Things will reduce churn, and once again, we think that Netflix is positioned to grow," Pachter wrote in a note to clients.

Netflix (NFLX) shares rose nearly 2% to $191 in premarket trading on Monday.

In addition, Pachter noted that "wholesale changes" are not expected to happen "rapidly," but Netflix (NFLX) will "gradually" raise prices and roll out its ad-supported option later this year.

"In our view, Netflix’s recent losses are primarily a result of its deep saturation in [U.S. and Canada]," with Pachter adding that the company is making "two substantial changes" to its business model, cracking down on password sharing and introducing an ad-supported subscription.

"On balance, we think ad-supported subscriptions is a good idea, particularly as a disincentive to churn," Pachter explained.

Another change the company could implement is spreading out its most popular content, with Pachter highlighting the split seasons of Ozark and Stranger Things as a start.

"In our view, this experiment will be a resounding success if expanded to all Netflix originals, and we believe the company will ultimately move in that direction," the analyst added.

Last week, Bank of America cut its price target on Netflix (NFLX), highlighting concerns about the streaming TV giant's plans to roll out an ad-supported version of its service.

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