Netflix Inc (NASDAQ:NFLX) can shake off competition from the likes of Disney+ and Amazon Prime with an increased flow of original content thanks to its newly positive cash flows, said Jefferies in a bullish note today.
Initiating coverage, the US broker kicked off with a ‘buy’ and a price target of US$620 on the shares – a sizeable premium to the last close of US$486.28.
Even though subscriber numbers wobbled lately, Netflix bolstered its position as the premier streaming name last year and has remained a must-have service in the past year even as content owners like Disney are “pulling IP content left and right”, Jefferies analyst Andrew Uerkwitz said.
Having now turned the corner into positive free cash flows, he said this is a significant moment, as it will allow the company to “prime its original content pump” with an offering that “rivals the entire TV/movie industry combined”.
“Over time we expect other forms of entertainment and subscriptions to put pressure on the discretionary wallet, forcing consumers to make a choice based on value. We see NFLX holding its premier position,” he added.
He forecasts the FAANG streamer could spend more than US$100bn on content over the next five years while also churning out roughly US$17.5bn of free cash, cutting net debt below US$2.5bn, and returning around US$12bn in buybacks to shareholders.
“We believe the near term risks are well understood and that COVID has actually solidified NFLX as the premier video streaming service. Its scale plus quality/variety of content makes it a must-have OTT service.”