Red-hot Netflix is proving itself as a recession-resistant stock
Jakub Porzycki/NurPhoto
- Netflix shares have outperformed a struggling broader market this year, rising more than 10%.
- The stock is seen by some analysts as particularly well-positioned to withstand a recession.
- Shares climbed more than 5% on Tuesday on a report the company is aiming to double revenue by 2030.
What sell-off?
As major stock indexes have gotten off to a rocky start this year, Netflix has been a beacon of strength, handily outpacing the broader market and its mega-cap tech peers.
The company has climbed more than 10% since the start of January, compared to an 8% loss for the S&P 500 and an even-sharper 17% decline for the elite Magnificent 7 cohort.
Netflix's market domination continued on Tuesday, with shares surging as much as 6% on a report that the company is aiming to double revenue and reach a $1 trillion market cap by 2030. (It's currently valued at $420 billion.)
But that doesn't tell the whole story. To fully appreciate Netflix's vast outperformance, one must look at how the stock has held up over a longer period that has featured repeated recession alarms.
Bank of America highlighted Netflix's recession-averse nature in a Tuesday research note in which they reiterated their "buy" rating on the stock. Its 12-month price target of $1,175 marks 26% upside from Monday's close.
"Amid recent market volatility, Netflix's strong subscription model with critical entertainment (which historically has performed well in a recession) has made the stock a defensive choice for investors and driven outperformance versus other technology/Mag 7 companies," analysts led by Jessica Reif Ehrlich wrote.
Joe Terranova, chief market strategist at Virtus Investment, also considers Netflix a "recession resistant" stock.
"Think about consumer behaviors in a recessionary climate. What are you going to be doing less of?" Terranova said on CNBC on Tuesday. "Less of going out to find entertainment, and actually staying home to enjoy the entertainment you have with Netflix."
For Bank of America, Netflix has ample opportunity for long-term growth through subscriber growth in international markets, subscription price increases, and advertising growth.
"The company still sees a significant opportunity for growth, driven in large part by expansion into international markets," the strategists wrote.
"To the extent the company sees a runway for continued strong subscriber growth, we think it should give investors confidence in Netflix's ability to grow over the next several years," they added.