has another fan on Wall Street.
Oppenheimer analyst Jason Helfstein raised his rating on the video streaming company to Outperform from Perform, citing the potential for faster subscription growth following Netflix’s launch of its planned ad-based service. He has a target of $325 for the stock price, while the shares were flat at $240.19 on Monday morning. They have fallen by 60% this year.
Helfstein’s rating change comes after Evercore ISI’s Mark Mahaney upgraded his rating on Netflix shares to In Line’s Outperform last week, while Macquarie Research analyst Tim Nollen raised his rating to Neutral from Underperforming earlier this month. Nollen thinks Netflix can increase its overall revenue by offsetting revenue lost when subscribers switch to the cheaper ad-supported version with revenue from advertisers.
Netflix (ticker: NFLX) hasn’t confirmed pricing for its ad-supported tier, although late last month Bloomberg reported that the service would cost around $7-9 per month and would not wouldn’t include the full Netflix catalog. Netflix said on a conference call in July to discuss its revenue that it would launch the new service tier in countries with mature ad markets around early 2023.
Helfstein said an exclusive survey indicated not only that the ad-based tier will attract users, but there is also a greater opportunity to encourage former users to re-subscribe. More than 40% of people in the United States who stopped subscribing to Netflix would re-subscribe at a lower price, he said. Of the 9% of survey participants who said they had never subscribed, 30% expressed interest in subscribing at a lower price.
In addition to growing the user base,
The optimism stems from Netflix’s dominant position in streaming and its ability to sell ads at a cost well above the normal TV average. “Netflix draws large audiences for big-name show releases, comparable to award shows and major sporting events…” Helfstein wrote.
Still, several analysts are still unconvinced about the addition of an ad-based service. Benchmark analyst Matthew Harrigan reaffirmed his sell rating last week, saying reports indicate Netflix is charging advertisers aggressively. It likely set unrealistic price expectations for a service with limited ad-tech capabilities, he said. Netflix did not respond to a request for comment at the time.
Bank of America analyst Nat Schindler said earlier this month that any benefits from the new feature are “several quarters, minimum.”
During the July earnings call, chief product officer Gregory Peters acknowledged that the ad-supported tier will start out as a relatively small contributor to Netflix’s total revenue mix. “But we think we can develop it to be substantial over a period of time,” he added.
Netflix has tried to encourage investors to focus on 2023 and 2024, when it expects revenue growth to accelerate, unlike the past two quarters, when the company reported disappointing subscriber numbers.
Write to Karishma Vanjani at [email protected]