A second-quarter earnings update from Netflix Inc NFLX could be all about ad-supported plan growth and future monetization, analysts say ahead of the company's July 17 report.
The Netflix Analysts: Benchmark analyst Matthew Harrigan maintained a Sell rating on Netflix and raised the price target from $450 to $545.
Macquarie analyst Tim Nollen reiterated an Outperform rating on Netflix and a price target of $685.
Benchmark on Netflix: The streaming leader gets high praise from Harrigan in a new investor note with a Sell rating attributed to the stock appearing overvalued.
"Netflix management undeniably continues to execute well on paid sharing, its AVOD effort and injecting significant new content including NFL Christmas Day games and WWE Raw next year," Harrigan said.
The analyst said Netflix saw some early advertiser frustrations with the company's scale and now faces pressure on pricing for ads thanks to Amazon Prime Video, the streaming segment of Amazon.com Inc AMZN.
Harrigan sees a goal of $4 billion to $5 billion in global advertising sales as "readily attainable" by 2027 or 2028. Right now, the analyst sees a small impact from the ad-supported plan.
The key to growth for advertising-supported plans will likely be the company's new live sports rights which will come later in 2024 and 2025, the analyst noted.
"Streaming of live events and sports is essential to the AVOD effort given the desirability for reach and simultaneous viewing."
"We still do not feel the current valuation can be justified even valuing Netflix as a Nasdaq 100 high growth technology name and disregarding its hybrid media stock character."
Harrigan said investors may pay attention to momentum for Netflix more than valuation.
Macquarie on Netflix: The ad-supported tier is key for Netflix's future and could add up in 2025, Nollen said in a new investor note.
The analyst forecasts $2.5 billion in ad revenue for Netflix in fiscal 2025 with ad-supported monthly active users doubling to around 90 million.
"Netflix continues to enhance monetization of its already scaled user base," Nollen said.
The analyst said the advertising efforts had a difficult start and challenges for the content company. The ad-supported plan also still lacks sufficient scale for some of the largest advertisers, the analyst noted.
"It has reportedly slashed CPMs to remain competitive, while advertisers have voiced concerns about weak targeting and measurement features."
Despite the challenges, the analyst sees recent strategic changes pointing to a step up in revenue for advertising in 2025. This includes cancelling its basic tier and forcing users to the ad-supported tier, the analyst noted.
Nollen said partnerships with Google, The Trade Desk and Magnite should also offer increased demand and better matching for advertisers.
"We see multiple levers, including ad sub growth and enhanced ad tech underpinning a material step-up in 2025E advertising revenue."
NFLX Price Action: Netflix stock trades at $653.60 versus a 52-week trading range of $344.73 to $697.49. Netflix stock is up 34.2% year-to-date in 2024.
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