Netflix shares close at all-time high as investors praise earnings. However, valuation concerns remain.

Netflix (NFLX) stock closed at a record high just above $772 on Monday as the streamer continued to benefit from positive momentum from its better-than-expected quarterly results last week.

Netflix beat all key financial metrics in its third-quarter results last week and forecast current-quarter revenue that exceeded Wall Street expectations. On Friday, the streaming giant achieved a previous record close of just under $764.

“In our view, Netflix remains one of the best-positioned companies in media and has multiple growth drivers,” Bank of America analyst Jessica Reif Ehrlich wrote in a note following the report, citing the company’s booming advertising business and its initiatives in the media space Gaming area, sports and live events.

The analyst reiterated her buy recommendation for the shares and increased her price target from $740 to $800.

But with the stock up nearly 60% year-to-date, its lofty valuation has raised some concerns.

Too good to be true?

Investors have rewarded Netflix for diversifying its revenue streams, such that its ad tier now accounts for over 50% of signups in the countries where it is offered.

The company’s revenue growth benefited not only from advertising, but also from the streamer’s crackdown on password sharing, which analysts say is almost complete. The completion of the crackdown is expected to result in fewer subscribers compared to previous quarters, with future price increases likely to offset the slowdown.

“Revenue growth in 2025 and beyond is likely to continue to be a result of slower subscriber growth and a return to a more normal pricing rhythm as the company has largely weathered the year.” [password sharing crackdown]Bryan Kraft, an analyst at Deutsche Bank, said on Friday.

Wall Street analysts have noted that a price increase would be a positive catalyst for the stock in the near term, citing the company’s pricing power relative to competitors.

“Given Netflix’s low cost per hour viewed, we see room for the company to increase U.S. prices by 12% in 2025,” Citi analyst Jason Bazinet said in a note ahead of the report.

Netflix co-CEO Greg Peters said the company will continue to “evolve” the pricing of its tiers, but it “loves it.”[s] the low price and increased accessibility that come with our advertising plan, which costs $6.99 in the US.

Still, Netflix recently announced that engagement levels remained nearly flat compared to last year – a potential headwind when it comes to the company’s ability to raise prices.

“With much of the subscriber growth appearing to be driven by improved monetization of an existing (rather than growing) user base, we question whether the momentum can continue next year,” MoffettNathanson analyst Robert Fishman wrote in a note to clients Connection to the report.

The story continues

“Netflix stock is hugely expensive for a company whose own forecast implies a revenue decline through 2025.” Last week, Netflix said revenue growth is expected to slow to 11% to 13% in 2025 from an expected 15% this year.

Fishman maintained his neutral rating on the shares. He expects the stock to fall to $670 by the end of the year.

“At the end of the day, we all know that Netflix is ​​the winner of the streaming wars,” Fishman continued. “It has a bright future as the king of premium long-form media. Yet the market has priced Netflix stock as if it would be even higher, and that leaves us on the sidelines and guessing.”

Netflix last raised the price of its Standard plan in January 2022, increasing the monthly cost from $13.99 to $15.49. At the same time, the price of the premium tier was increased by $2 to $19.99 per month. The company increased the cost of this plan again last October to $22.99.

Netflix recently phased out its lowest-priced ad-free streaming plan, making the $15.49 Standard plan the cheapest deal for an ad-free experience.

Netflix has not yet increased the price of its ad-supported offering, which it launched less than two years ago and remains one of the cheapest advertising plans among all major streaming providers at $6.99 per month.

“A price increase is long overdue and that’s exactly what investors are looking for,” Bloomberg Intelligence analyst Geetha Ranganathan told Yahoo Finance’s “Market Domination” following the earnings report.

“If you look at the bigger picture, the stock’s valuation is high [and] “Sales growth is the basis of this high valuation,” she said. “In order to generate consistent revenue, these price increases are necessary.”

Ultimately, though, Ranganathan said it’s hard to see others catching up: “Netflix has won the streaming wars, hands down.”

Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and send her an email at [email protected].

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