After taking a fresh look at Netflix stock (NASDAQ:NFLX) content strategy, Jefferies comes away wary, especially as the new ad-supported tier is only now beginning to develop. In particular, it has given analyst Andrew Uerkwitz reason to believe that fourth-quarter subscriber growth may only meet or even fall short of estimates.
Even though the scope of that study wasn’t very big, the company did a number of correlations between data about its top 10 most popular pieces of content across different regions. “There isn’t much of a link between the most popular shows in English and overall engagement or subscriptions, but there is a stronger link in international,” the company found.
This gives management more assurance that it can keep spending flat if it chooses to, according to Uerkwitz (Netflix co-CEO Ted Sarandos recently stated that the company’s annual $17 billion in content spending is expected to level off around that amount). However, it also makes Uerkwitz believe that, based on recent consumption data, sub-growth may miss, which would be caused by a miss globally, he said.
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Uerkwitz says that the advertising tier, which was added at the beginning of November, will be “basically useless” if the campaign isn’t linked to crackdowns on password sharing.
He also said, “We expect the “start” date to be 2Q23, and we think the two are inextricably linked in terms of what drives the growth of AVOD (ad-supported video on demand).
He thought that by 2024, the conversion rate for the target audience would be 67%, there would be less churn in the turn-on/turn-off category, and there would be fewer “downgrades of higher-priced tiers.” His calculations show that the combination of ads and more subscriptions due to a crackdown on passwords will bring in $6–7 billion by 2024.
With a Hold rating, he comes to the conclusion that Jefferies’ estimates for the fourth quarter and the first quarter of 2023 are lower than what the Street thinks, but Jefferies’ estimates are 7% higher than what the Street thinks by the end of 2024, when the advertising tier is more mature: “We believe we could get a better entry price on our long-term thesis.”
Wells Fargo raised the price of Netflix stock (NASDAQ:NFLX) last week on the basis of the subscriber base’s increasing stability.
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Author Jowi Kwasu 
