Netflix stock (NASDAQ:NFLX) investors have had a miserable year. A rapid drop in paying customers has significantly impacted the company, which has lost more than 60% of its value thus far in 2022. However, the streaming behemoth might experience a significant reversal in its fortunes sooner rather than later.
Netflix said earlier this year that it intends to add an ad-supported subscription option to its current levels. The plan was supposed to go live in 2023, but sources indicate that Netflix may have accelerated the timeframe to stem customer losses. The ad-supported tier is expected to be available as early as November 1.
Netflix Stock: An ad-supported strategy might be a game changer.
Anmuth expects that 7.5 million users in the United States and Canada will choose the ad-supported plan by 2023, generating $600 million in advertising income for Netflix. While this would be a modest fraction of Netflix’s top line, considering the company’s $31 billion in sales over the previous 12 months, ad income is likely to increase significantly in the long term.
According to the JPMorgan analyst, the ad-supported plan would generate $2.65 billion in ad income by 2026 due to a stable user base of 22 million. Globally, the figures are projected to be significantly higher. Netflix anticipates that it will have 40 million ad-supported users worldwide by the end of 2023, up from 4.4 million in 2022. Meanwhile, market research company Omdia predicts that by 2027, 60% of Netflix’s worldwide user base will be on an ad-supported tier.
After five years, the corporation may make 14% of its worldwide revenue from ad revenues, up from 1% in 2023. It remains to be seen how much cash this new plan will generate for the firm in the long term, but an ad-supported plan might become a big growth engine for Netflix for two simple reasons.
Why this move might be a stroke of genius
An ad-supported plan might boost Netflix stock (NASDAQ:NFLX) growth because it makes the company’s plans more accessible. According to reports, Netflix’s new package might cost between $7 and $9 per month. Customers may find this a welcome option to the company’s most popular plan, which costs $15.49 per month.
In the United States, Netflix’s basic plan costs $9.99 per month, while the premium plan costs $19.99 per month. However, consumers are apparently tired of the company’s repeated price rises and rising inflation, which may force them to abandon the platform. As a result, the launch of an ad-supported tier that is less expensive than Netflix’s basic plan might relieve the firm and help it stop customer losses.
Furthermore, the organization will now be in a better position to compete against competitors that use a more aggressive pricing approach. This might offer Netflix a greater chance of reviving membership growth and expanding its influence in the rapidly expanding video streaming business, which is estimated to reach $139 billion in sales by 2027, up from $80 billion this year.
However, I feel the second issue might be a stronger growth driver for Netflix stock (NASDAQ:NFLX). In the second quarter of 2022, the firm had approximately 221 million paying members. The streaming platform offers a high level of user involvement. Netflix customers were allegedly watching 3.2 hours of video material per day in 2020, an increase from the pre-pandemic average of two hours.
As a result, the digital ad market might open up a whole new revenue stream for Netflix. Analysts now expect the firm to expand at an annual rate of 8.8% over the next five years, but it might perform much better than that since it has more than just the video streaming services industry to tap into right now. And, with the company now selling at under 20 times trailing earnings, compared to Netflix’s five-year average multiple of 104, investors should consider acquiring this tech stock now.
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Author Okoro Chinedu 
