Shares of Netflix Inc. have underperformed the overall stock market by a large margin this year, but the upcoming launch of its new advertising tier is starting to grab the attention of investors.
The streaming giant shares NFLX,
which fell 0.5% in Wednesday morning trading, have risen 7.7% since Netflix reported Q2 results in July. “Our discussions suggest that investor sentiment and interest, while still mixed, is building towards the launch of the ad-supported subscription level, likely in Q4,” JP Morgan analyst Doug Anmuth wrote in a note to customers.
The stock plunged 64.0% this year, but climbed 29.6% over the past three months, while the S&P 500 SPX Index,
it fell 17.2% year to date and gained 5.6% in the past three months.
See now: Netflix stock gets an update as the company plans its ad tier
Netflix is preparing to launch its new ad-supported business, also known as ad-based Video on Demand (AVOD).
“Our low-priced ad-supported offering will complement our existing plans, which will remain ad-free,” Netflix said in a letter to shareholders when it released its second quarter results. The company was aiming for a launch of the service in early 2023, but has now moved it to November, it has reportedly Varietyciting industry sources.
Two top Snap Inc. SNAP,
Advertising executives recently switched to Netflix ahead of the launch of the ad-supported tier.
“We continue to believe that NFLX has urgency to both accelerate revenue growth and increase [free cash flow]and the recent hires of Jeremi Gorman and Peter Naylor from Snap should provide more confidence in monetizing the ad level, ”writes JP Morgan’s Anmuth.
See now: Two of Snap’s top advertising executives switch to Netflix ahead of the ad-supported tier launch
JP Morgan has a price target of $ 240 and a neutral rating for Netflix.
Not everyone on Wall Street is so optimistic about AVOD, as benchmark analyst Matthew Harrigan believes the stock’s recent rally could be overtaken. The analyst also discussed the possibility of Netflix’s “arrogance” over AVOD’s pricing.
“We recognize that Netflix’s AVOD effort could bring over 20 points to the upside with exemplary execution, although early indications indicate that Netflix is unrealistically aggressive on pricing given the features of vanilla advertising features, especially personalization versus peers and inadequate performance measurement, “he writes.
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Although pricing for the new service has not yet been revealed, Harrigan thinks Netflix may have “unrealistic” expectations in what he describes as an uncertain market. Quoting Insider, writes that Netflix is demanding a CPM of $ 65 from advertisers. CPM, which stands for Cost per Mille, or cost per thousand, is the rate an advertiser pays for a thousand views or impressions of an ad. A CPM of $ 65 is more than double the $ 20 to $ 30 price of Hulu and AMZN of Amazon.com Inc.,
Amazon Prime, according to Harrigan, again citing Insider.
“Although there have been some premature and inaccurate reports on member pricing and other details, Netflix’s early November AVOD launch timing for the US, UK, Canada, France and Germany is an apparent response to the debut. Disney + in December, “he writes. “Compressed launch times mean that Netflix simply runs traditional linear video ads with de minimis targeting and zero customization.”
The benchmark has a target price of $ 157 and a sales rating for Netflix.
Of the 45 analysts surveyed by FactSet, 12 have the equivalent of a buy valuation on Netflix stock, 27 have a pending valuation, and six have the equivalent of a sell valuation.