Bank of America Buys Netflix and Double Upgraded
Bank of America and Netflix and Netflix’s monetization efforts make it an attractive stock despite slowing subscriber growth, Bank of America said on Tuesday.
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Analyst Jessica Reif Ehrlich assumed coverage of the stock, doubling it to buy on the underperformers. Ehrlich also has a $370 price target on Netflix, which represents a 23.6% increase from Monday’s close.
“In our view, its global scale, strong brand and superior user experience position it as a leader as this transition continues globally,” she said in a note to clients. “Despite slower incremental growth, we believe efforts to improve monetization through a value-based advertising layer and significant conversion of users who share passwords have the potential to increase operating/financial profit.”
Bank of America Buys Netflix
Ehrlich said Netflix is ”still the leader in streaming,” but now with more diversified revenue streams. The company could see $719 million from advertising within its core platform by 2025. Expansion into standard and premium tiers could bring in $627 million, though that option is not included in Bank of America’s current forecast.
Netflix launched an ad-supported subscription plan earlier in November for $6.99 a month. This tier includes 4 to 5 minutes of ads per hour of streaming with no downloadable content. Bank of America Buys Netflix
Some content has been excluded from ad tiers due to licensing issues. Meanwhile, some on the production side are opposed to the move, saying that ads in the middle of their content are detracting from the story.
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The streaming giant, which uses Microsoft for its advertising needs, has reversed course after years of rejecting the idea as a way to mitigate a decline in subscriber growth. Bank of America Buys Netflix
Netflix added 2.5% in premarket trading on Tuesday. Shares are down 50.3% from the start of 2022 as the tech sector was hit hard and investors shied away from growth.
Short-term issues such as inventory gluts, increased competition and a deteriorating broader economy could hurt stocks in the short term. But Ehrlich said Netflix’s ability to drive engagement, “extraordinary” demand from advertisers and the likelihood of getting premium rates for its ad space are likely to help the stock.
Meanwhile, Ehrlich said the company’s crackdown on password sharing will also help boost the overall address market. Netflix estimates it is losing 100 million potential subscribers to password sharing, but Ehrlich said his brand is uniquely positioned to convert subscribers, especially given the new, cheaper advertising layer. They see a potential upside in 2023 or 2024 that could bring in more than $1.2 billion worldwide, though the forecasts don’t factor in incremental revenue or subscribers from password-sharing changes.