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Netflix Price Target at Wall Street High on 'Virtuous Cycle'

Netflix has a Wall-Street-high $650 price target at Pivotal Research, which sees a "virtuous cycle" of subscriber growth.

Shares of Netflix  (NFLX) - Get Netflix, Inc. (NFLX) Report were higher Wednesday after the media-streaming major's price target was raised to a Wall Street high $650 from $600 at Pivotal Research with a buy rating. 

The new target indicates 28% potential upside from the stock's Tuesday closing price. The stock recently was 3.1% higher at $521.50. 

Netflix is in the middle of a "virtuous cycle" of subscribers paying for the company's spending on new content, and that new content subsequently brings in more subscribers, Pivotal analyst Jeffrey Wlodarczak said in the note. 

This cycle should help Netflix "remain as the dominant subscription-video-on-demand player for the foreseeable future," Wlodarczak said. 

Competition has increased as Comcast  (CMCSA) - Get Comcast Corporation Class A Report launched the Peacock streaming network and, to a lesser extent, from HBO Max  (T) - Get AT&T Inc. Report and the return of sports, the analyst said. 

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"As NFLX continues to gain scale and invest in ever more compelling programming, we expect further material price increases, while also still substantial increases in subscriber totals and eventually a rapid expansion in NFLX profitability reaching an ultimate about 35% [earnings before interest, taxes, depreciation and amortization] margin by 2026," Wlodarczak said. 

The note does warn that Netflix has $20 billion in content commitments made under self-produced content, with significant free-cash-flow losses, including a $2.5 billion projected free cash flow loss in 2020. 

In addition, other content companies, like Amazon  (AMZN) - Get, Inc. Report and Apple  (AAPL) - Get Apple Inc. (AAPL) Report, could get far more aggressive in their show offerings.

"In our view AMZN represents the largest competitive threat to NFLX, offset by the reality that at AMZN/NFLX price points the two players can coexist," the analyst said.

"Competition from ad-supported live-streaming players does not appear to be a threat to NFLX in our view."