Shares of Netflix (NASDAQ:NFLX) have been gaining traction lately, now up more than 94% off their June lows. Undoubtedly, the fear surrounding the video-streaming space was overblown following two colossal quarterly flops dealt by the streaming top dog. Despite the powerful rally, Netflix stock remains down around 54% from its all-time high hit in October 2021.
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With a strong slate of releases, an ad-supported tier to help the firm recover subscribers in a potential recession year, and a foot in the door of the video-gaming market, Netflix stock may find itself on the receiving end of more multiple expansion over the coming months.
Netflix has felt the full force of the valuation reset. Looking back, it’s clear that the stock got overly punished. After a big rally, Netflix stock trades at 28.2 times trailing earnings. That’s a pretty reasonable multiple, given the firm’s market dominance and reputation as a FAANG company. Still, the stock remains pricier than many of its FAANG rivals despite its growth uncertainties.
There are a lot of hungry players in the streaming space these days. Regardless, the dip-buyers think the streaming pioneer can hold its own as a slew of new content lands from its big-budget rivals. As Netflix continues creating “must-see” content, the tides may turn back in the streaming giant’s favor, and growth could heat up again. Indeed, few firms have what it takes to maintain a full and steady pipeline of releases like Netflix.
Netflix Stock: Big Upgrades from Analysts
Recently, Cowen and Wells Fargo (NYSE:WFC) slapped Netflix stock with an upgrade. Wells noted that the company has “more ways to win” the new year. Wells Fargo analyst Steven Cahall hiked his recommendation from “Hold” to “Buy” while increasing the NFLX stock price target from $300 to $400. That’s a massive upgrade that caught investors’ attention on a sluggish day on Wall Street.
Indeed, Netflix has a lot of things it can do to win back subscribers beyond just pumping out shows and films. Video gaming remains a crucial area that investors should not ignore as Netflix takes a step back to evaluate opportunities in parallel markets.
I remain bullish on Netflix stock, even after such a sizeable rally.
Video Game Ambitions are Just One Way to Reignite Growth
In a prior piece, I outlined how gaming would help Netflix give its growth rate a jolt. Indeed, Netflix’s push into mobile gaming doesn’t seem to be a big deal for most subscribers. Netflix now has a good number of mobile games proudly touted in the Netflix app. Going into 2023, Netflix may be ready to take its video game business to the next level (forgive the pun).
Recently, Netflix made headlines for a job posting seeking a game director to help the firm with a “AAA PC game.” A move into triple-A gaming is unsurprising, as it puts the firm on the turf of fellow FAANG rival Microsoft (NASDAQ:MSFT), which dominates the gaming space with its Xbox division.
Indeed, FAANG companies are becoming more similar by the year. Arguably, Netflix has the most room to take share from rivals as it looks beyond the video-streaming market many of its peers have entered over the past few years.
Netflix’s first foray into triple-A PC gaming will likely be a shooter game. Indeed, some of the most popular titles, like Fortnite and Overwatch, are shooters. The shooter space is crowded but full of potential. It only takes one hit game that could open the floodgates into the Netflix ecosystem.
Should Netflix’s PC-gaming push prove successful, Netflix may be as much a gaming company as it is a video streamer.
Is Netflix Stock a Buy, According to Analysts?
Turning to Wall Street, NFLX stock comes in as a Moderate Buy. Out of 32 analyst ratings, there are 16 Buys, 13 Holds, and three Sell recommendations.
The average Netflix price target is $296.84, implying downside potential of 7.3%. Analyst price targets range from a low of $162.00 per share to a high of $405.00 per share.
The Takeaway: Netflix’s Rally Seems Sustainable
Netflix stock has a lot of potential catalysts for investors to look forward to. We’ll see how the ad-supported tier will fare as the economy takes a hit to the chin. Further, new video game announcements could cause some analysts to upgrade their growth estimates for the company.
At less than 30 times trailing earnings, Netflix stock still seems underpriced. Queue the analyst upgrades!
