Netflix (NFLX) Shares Rise on High Ad Sales Expectations

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After suffering terribly throughout this year, the streaming giant Netflix (NASDAQ:NFLX) finally provided some cheer, moving against broader market weakness. A prominent voice on Wall Street backed the company’s decision to introduce an advertising-based subscription tier. Theoretically, the decision should expand Netflix’s consumer base, although ultimate adaptability and resilience in the face of competitive pressures remain challenging factors. NFLX shares gained 1.5% in the afternoon session.

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

Further, Anmuth explained that “Netflix’s narrative has gone from slow or no growth in business today to advertising and paid sharing in 2023.” What Yahoo Finance noted, the “company shed more than a million paid subscribers in the first two quarters of the year as the economy slowed and consumers cut back.”

So Netflix had to do something to stop the bleeding of NFLX stock. Supposedly, with the ad-level business, the streaming company can attract new paying subscribers and regain momentum. “By 2026, Anmuth believes the US/Canada segment of Netflix will have 22 million subscribers and generate $2.65 billion in ad sales,” according to Yahoo Finance.

NFLX stock intrigues, but questions also remain

To be sure, Anmuth’s relative optimism is not an exclusive argument. Atlantic Equities analyst Hamilton Faber raised his rating on NFLX stock to “overweight” from “neutral.” Oppenheimer analyst Jason Helfstein raised his assessment to “outperformer” from “performance.” 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 strong opportunity to generate significant demand through the advertising option. “I think it will be a net-net-incremental [positive]”, Blackledge told Yahoo Finance Live. “It is a positive multi-year income [opportunity] to the company.”

Although the rising tide of optimism over NFLX stock represents encouragement for conflicting stakeholders, not all share the same sentiment. For example, Benchmark analyst Matthew Harrigan reaffirmed his “sell” rating on NFLX, citing overly optimistic ad pricing for its next ad-based service, according to Barron’s.

Crucially, Netflix’s foray into ad-driven services clashes with the convenient, low-cost, ad-free platform it previously provided. In fact, according to news week, Netflix encouraged its subscribers to share their passwords. By ending this renegade attitude and instead going corporate through advertising, there is a risk of alienation.

Additionally, NFLX stock is facing intense competition. Disney (NYSE:DIS), which has always been corporate and known for its economic thinking, has no qualms about introducing accessibility at the ad level. Frankly, people expect Disney to do whatever it takes to please its powerful shareholders.

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

At the date of publication, Josh Enomoto did not have (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines.

Josh Enomoto, a former Senior Business Analyst at Sony Electronics, has helped negotiate major contracts with Fortune Global 500 companies. In recent years, he has provided unique and critical insights to investment markets as well as other industries, including legal, construction management and health care.

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