The ongoing effort by Netflix to revive its subscriber,revenue growth and NFLX Stock price will enter a new phase starting in the following month.

The declining subscriber base at Netflix Inc (NASDAQ:NFLX) will continue to slow revenue growth through the first half of 2022. However, all of that may soon change as Netflix is ready to introduce its tier financed by advertisements.

It is possible that advertising will be responsible for reaccelerating the company’s revenue growth while also enabling it to maintain stable prices, which would, in turn, reinvigorate the growth of subscribers. In addition, investors were able to witness the benefits of advertising immediately.

The enormous market potential offered by Netflix for advertising

On November 1st, Netflix Inc (NASDAQ:NFLX) is going to begin offering a tier that is supported by advertisements. It’s possible that the intention is to get ahead of their competitor Disney, who is planning to release an ad-supported version of Disney+ in December. The leader in the streaming industry, Netflix, has always been known for its demanding business practices. According to several sources, it is seeking to charge greater rates for advertisements than the Super Bowl does.

The fact that Netflix Inc believes it has the capacity to even ask for that much money demonstrates the strength of its position. The high ad pricing has put off many purchasers. There aren’t many other platforms that can provide an audience as diverse as Netflix’s on the screen that provides the most immersive experience in the house, which is the television in the living room.

Netflix Inc intends to limit the amount of time spent on commercials to about four minutes for every hour of content. Although Disney intends to display a comparable amount of advertisements on Disney+, the company currently only does so on Hulu at a rate of around six minutes per hour.

However, what sets Netflix Inc apart from its competitors is an exceptionally high level of user participation. In 2019, management said that the typical subscriber watched more than two hours of content on the company’s service every day. Although the number may have decreased over the past several years as a result of changes in viewing patterns and an increase in the amount of competition, estimations continue to be high.

It is interesting to note that the typical Netflix user views far more content from Netflix Inc than the typical Hulu subscriber watches content from Hulu. Despite having just around 1.5 times as many domestic customers as Netflix (NASDAQ:NFLX), the Nielsen report known as “The Gauge” constantly reveals that Netflix has more than twice as much viewing time as Hulu.

Netflix (NASDAQ:NFLX) should see considerable increases in its ad income per user as a result of the combination of high ad rates and high engagement with its content. According to Hamilton Faber, an analyst at Atlantic Equities, the business may potentially be able to produce $26 in ad income per user each month in the future. This value is more than three times as much as Disney’s revenue from advertisements on Hulu.

The tier that is sponsored by advertisements could give an instant increase.

Netflix anticipates having just 500,000 ad-supported members by the end of 2022. When compared to the 220 million customers it had as of the end of June, that is a negligible number. In spite of this, the effects were noticeable right away.

The reasoning is sound, even considering the possibility that Faber’s assessment is too pessimistic. It is expected that higher ad pricing and increased interaction would result in higher levels of ad income generated per subscriber than other streaming providers. Because of this, the tier with advertisements should generate more revenue than the tier without advertisements.

Therefore, Netflix Inc should experience an increase in income per user when existing members make the switch from ad-free to ad-supported streaming. According to the findings of a recent poll conducted by Samba TV, 45% of currently subscribed users have considered making the transition to a version of Netflix that is funded by advertisements. It is possible that this may finally result in an increase in Netflix’s average income per membership without the need for the company to raise its pricing once more the following year.

Even while there may be some additional expenses associated with setting up the ad-supported tier, it is expected that the increase in income would more than makeup for those expenditures. The significant involvement of Netflix users combined with the high ad pricing that Netflix seeks should boost the company’s income and profitability.

Should you put a thousand dollars into Netflix (NFLX stock) at this time?

First, you’ll want to hear this before you even think about getting Netflix.

Netflix was not included on the list of the ten greatest companies for investors to purchase. It was just released by our prestigious research team, which has won several awards for its work.

Motley Fool Stock Advisor is an online investing service that the company has been operating for the past two decades, with a record of success that is three times better than the market overall. In addition, they believe that there are ten different equities that are better buys right now.

 

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