Netflix Stock Catches an Upgrade. Why the Streamer Could Climb Another 19%.

Richard Osman, Dame Helen Mirren, Pierce Brosnan, Celia Imrie, Sir Ben Kingsley, and Chris Columbus attend the U.K. premiere of “The Thursday Murder Club.” (Lia Toby/Getty Images)

Key Points

• Seaport Research Partners upgraded Netflix to Buy, raising its price target to $1,385, implying a 19% increase.
• Analyst David Joyce forecasts Netflix’s advertising revenue to double to $3.1 billion this year, reaching $16 billion by 2030.
• Netflix’s operating income margins are projected to exceed 32% this year, rising to nearly 41% by 2030.

Netflix stock has been struggling for direction lately—but it could be due another rally as excitement builds about the video streamer’s ad-supported tier, according to Seaport Research Partners analyst David Joyce.

He upgraded shares to Buy from Neutral late Monday, while hiking his price target to $1,385 from $1,230. The new target price implies Netflix can jump about 19% from its level as of Monday’s close.

Created with Highcharts 9.0.1Netflix Inc.Source: FactSet

Created with Highcharts 9.0.12025Oct.8009001,0001,1001,2001,300$1,400

The stock started the year on a tear, propelling the streamer to a valuation of about $500 billion, but has slipped about 10% over the past three months as investors digested the rally.

Joyce said he would be a buyer heading into Netflix’s third-quarter earnings on Oct. 21, as he raised his estimates for both ad revenue and operating income.

Data from Nielsen suggest Netflix now only trails Disney and Alphabet’s YouTube TV when it comes to TV market share, the analyst noted.

That should help the streamer to rack up more money from ad sales, Joyce said. He’s expecting advertising revenue to double to $3.1 billion this year, then grow 48% annually to hit $16 billion by the end of 2030.

The worldwide success of projects such as Squid Game and KPop Demon Hunters should also help the company to grow its global user base, Joyce added. As a result, it can spread its content spend across a wider range of customers, which should boost its margins. Joyce expects Netflix’s operating income margins to top 32% this year, ahead of the 29.5% it’s previously guided for, and then rise to just under 41% by 2030.

Netflix shares ticked up 1.5% to $1,181 in early trading Tuesday. The S&P 500 was 0.1% higher.

Joyce isn’t alone in being bullish on shares. Of the 54 analysts who cover the stock, 32 rate it a Buy, according to FactSet data. Wall Street’s consensus price target of $1,373 implies shares can climb 18% from their current level.

Write to George Glover at george.glover@dowjones.com