Netflix (NFLX) Stock Rises on High Expectations for Ad Sales

  • Shares of Netflix (NFLX) swung higher against the grain of a volatile broader market.
  • Analysts believe the company’s inclusion of an ad-tier subscription can help its recovery efforts.
  • NFLX stock still faces challenges from consumer adoption ambiguities and intense competition.
NFLX stock - Netflix (NFLX) Stock Rises on High Expectations for Ad Sales

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After suffering horribly throughout this year, streaming giant Netflix (NASDAQ:NFLX) finally provided some joy, moving up against broader market weakness. A prominent voice on Wall Street backed the company’s decision to introduce an advertisement-based subscription tier. Theoretically, the decision should expand Netflix’s consumer base, though ultimate adoptability and resilience against competitive pressures remain challenging factors. NFLX stock gained 1.5% in the early afternoon session.

Specifically, JPMorgan Chase analyst Doug Anmuth stated in a research note on Monday that Netflix’s ad-tier subscription in the U.S. and Canada is “critical to re-accelerating revenue, expanding Netflix ’s SAM [serviceable available market], and driving greater profitability.” Per Barron’s, Anmuth has a “neutral” rating on NFLX stock with a $240 price target.

Further, Anmuth explained that the “Netflix narrative has shifted from slow/no sub growth on the current business to advertising and paid sharing coming in 2023.” As Yahoo Finance pointed out, the “company shed more than one million paid subscribers in the first two quarters of the year as the economy slowed and consumers cutback.”

Therefore, Netflix had to do something to stop the bleeding in NFLX stock. Supposedly, with the ad-tier business, the streaming firm can bring in new paying subs and regain momentum. “By 2026, Anmuth thinks Netflix’s US/Canada segment will boast 22 million subscribers and drive $2.65 billion in advertising sales,” per Yahoo Finance.

NFLX Stock Intrigues but Questions Also Remain

To be sure, Anmuth’s relative optimism does not represent an exclusive argument. Atlantic Equities analyst Hamilton Faber raised his rating of NFLX stock to “overweight” from “neutral.” Oppenheimer’s analyst Jason Helfstein upped his assessment to “outperform” from “perform.” Evercore ISI analyst Mark Mahaney also raised his rating to “outperform” from “in line.”

Not to be outdone, Cowen analyst John Blackledge mentioned that Netflix enjoys a solid opportunity to generate meaningful demand via the ad-tier option. “I think it will be a net-net-incremental [positive],” Blackledge told Yahoo Finance Live. “It is a positive multi-year revenue [opportunity] for the company.”

Although the rising tide of optimism for NFLX stock presents encouragement for embattled stakeholders, not all share the same sentiment. For instance, Benchmark analyst Matthew Harrigan reaffirmed his “sell” rating on NFLX, citing overly optimistic ad pricing for its upcoming advertising-based service, per Barron’s.

Fundamentally, Netflix’s foray into ad-driven services clashes with the convenient, low cost and ad-free platform it provided earlier. In fact, according to Newsweek, Netflix encouraged its subs to share their passwords. By doing away with this renegade attitude and instead going corporate through ads, a risk of alienation exists.

Also, NFLX stock faces intense competition. Disney (NYSE:DIS), which has always been corporate and known for its bottom-dollar thinking, has no qualms about introducing ad-tier accessibility. Frankly, people expect Disney to do whatever it takes to please its almighty shareholders.

In contrast, Netflix started with a consumer-friendly framework. Pivoting away from this strategy to a bottom-dollar approach presents risks. At the same time, with NFLX stock hurting badly this year, the underlying company couldn’t just sit back and do nothing.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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