With the significant market averages falling by about 5%, one of the gainers from the previous week was Netflix Inc (NASDAQ: NFLX). Following a few constructive comments from analysts, the leading premium video streaming service saw its shares rise 3%, defying Wall Street’s downward trend.
The stock rose due to glowing predictions made by analysts at J.P. Morgan and Evercore before the debut of Netflix’s ad-supported tier, but the bullish sentiment didn’t last just one week. Beginning the new trading week, Oppenheimer raised its assessment of Netflix shares from performing to outperforming.
Netflix Inc Potential Support
Oppenheimer’s Jason Helfstein supports Netflix’s potential now that it has adopted the ad-supported business model it had avoided since creating the premium video streaming market 15 years ago. Netflix Inc (NASDAQ: NFLX) will remain accessible in its current form without marketing messages. Shortly after, users looking for less expensive access will be able to choose a lower tier with video commercials inserted into the platform’s top content.
Netflix has established its value. At the end of June, there were 220.7 million paid streaming subscribers globally. However, it’s starting to seem mortal following consecutive quarters of subscriber decreases. With the competitive nature of the streaming industry and what may have been an unwise price increase earlier this year, Netflix has concluded that it must provide its audience with a more affordable method to use the site. Although some rumors indicate that it could debut as soon as later this year, Netflix anticipates launching the new ad-supported tier early next year. When Netflix releases its third-quarter earnings next month, investors should have a more robust understanding of the timetable and reasonable pricing.
According to Oppenheimer’s Helfstein, introducing an advertising tier can boost subscription growth and prevent users from abandoning the service. Although the lower monthly price point of the new service is appealing to consumers, Helfstein thinks it will ultimately increase the average income per user. It’s understandable how the volume can increase, given that Netflix users frequently spend hours on the platform. Netflix also expects advertisers to spend money to target demographics when watching advertisements.
By 2025, Helfstein projects $4.6 billion in yearly global advertising revenue, a sizable portion of the $42.4 billion he projects for Netflix’s top line. Of course, it’s not just about the ad revenue. In three years, he expects Netflix Inc (NASDAQ: NFLX) to have 282 million members, as the less expensive ad-supported plan should reduce Netflix’s attrition rate while attracting new customers. His $325 price estimate for the stock implies a 35% increase from the current price.
Even Netflix has high expectations for the new product. In one year, it anticipates having 40 million accounts on the new plan, with the U.S. market accounting for one-third of them. It will be fantastic if those 40 million memberships are all new to Netflix. Still, there’s no denying that most of them will be current subscribers who have downgraded to get cheaper access to Netflix’s expanding library of material.
In two years, Tesla announced it would split its stock for the second time. The streaming media stocks continue to benefit from consumer trends. Linear TV is losing viewers to online platforms, and the variety of series and movies that are accessible on demand will keep luring viewers who are looking for enjoyment. Naturally, all of the praise that Netflix receives could change if recessionary sentiments temper the connected TV ad market. Still, if people save money by staying at home more often, the medium should continue to perform better than the advertising market. This new strategy has a lot on the line for Netflix, and Wall Street likes what it sees so far.
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Author Valerie Remorosa 
