On Wednesday, Netflix stock skyrocketed after Atlantic Equities raised the stock from Neutral to Overweight. The investment firm cited upside potential in the streaming giant’s impending ad-supported tier as the reason for the upgrade.
As a result of analyst Hamilton Faber’s speculation that the advertisement launch “may be highly material,” the price target was increased from $211 to $283. In addition, he stated that he does not “think that the advantage is now reflected in the consensus.”
Due to Netflix’s higher viewership-per-subscriber numbers, analyst Meb Faber estimated that advertising could increase revenue by $6.7 billion within the next three years and that the average revenue per user (ARPU) may amount to $26 per month. This would make Netflix’s monthly revenue more than three times that of Disney’s (DIS) Hulu.
In trading that took place in the afternoon on Wednesday, Netflix stock rose by more than 9 percent.
Positive Sentiment on Wall Street over Netflix Stock
In recent days, Wall Street has been rather generous in awarding price increases to Netflix stock. Citigroup and Oppenheimer’s analysts have both boosted their price estimates on the stock, citing the company’s foray into the advertising industry as the reason for the increase.
According to a recent story from The Wall Street Journal, executives from Netflix and its advertising partner Microsoft (MSFT) met with ad buyers recently. These executives projected that Netflix’s ad-supported tier would reach 40 million viewers by the end of the following year.
A spokeswoman for Netflix stated earlier this month to Yahoo Finance that the company is still in the “early days” of choosing how to launch a lower-priced, ad-supported tier and that no decisions have been taken about this matter. “At this moment, everything is conjecture,” the speaker said.
Platforms have become increasingly open to exploring other distribution and pricing options to expand their audiences and counteract declining growth as competition in the streaming industry has increased. Wall Street has begun to focus on metrics other than the number of subscribers.
Netflix and Disney are the most recent platforms to join the ad-tier bandwagon; the latter platform plans to officially launch its ad option on December 8 this year. Netflix Inc (NASDAQ:NFLX) joined the bandwagon earlier this month.
Although previous messaging suggested that the firm may be bumping up the launch to November 1 to go ahead with Disney’s plan, Netflix recently announced two senior hires to put out an ad-supported tier in the next year.
According to Bloomberg, the price for the version supported by advertisements will range between $7 and $9 a month, and the business plans to play four minutes of advertisements for every hour of content.
According to a prior report by WSJ, Netflix is considering charging marketers approximately $65 for the opportunity to reach 1,000 users. This metric is often called CPM, which stands for “cost per thousand.” This fee is much greater than most other streaming services available.
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Author Ivy Palinlin 
