Ad-Supported Netflix Plans Could Come By End Of 2022: What Investors Need To Know

Streaming giant Netflix Inc NFLX saw shares tumble after reporting its first quarterly drop in subscribers in over 10 years.

One item being drawn up to combat subscriber losses could be coming sooner than expected.

What Happened: Netflix told its employees that it could launch an ad-supported, lower priced streaming plan in the last three months of 2022, according to The New York Times.

The note sent to employees would speed up the company’s plan put into place after its latest quarterly earnings report. Netflix CEO Reed Hastings said at the time that the ad-supported plans would come “over the next year or two.”

“Yes, it’s fast and ambitious and it will require some trade-offs,” the note said. “Every major streaming company excluding Apple has or has announced an ad-supported service.”

News that the company would offer an ad-supported plan came as a surprise after years of swearing off the need and comments from the company’s CFO Spencer Neumann in March saying it was “not something that’s in our plans.”

Related Link: Another Streaming Rival Reported Q1 Gains, Trouble Ahead For Netflix's U.S. Dominance? 

Why It’s Important: Rivals to Netflix like HBO Max, owned by Warner Bros. Discovery WBD and Paramount+ from Paramount Global PARA PARAA reported subscriber gains in the first quarter. Both companies offer ad-supported versions of their streaming platforms.

Netflix ended the first quarter with 221.6 million streaming subscribers and is the market leader. Adding an ad-supported plan could help boost the company’s overall subscriber count and lead to lower churn as it competes in a highly competitive market.

Needham analyst Laura Martin upgraded Netflix shares from Underperform to Hold after the earnings report on the thesis of the ad-supported plan on the horizon. 

“Today we upgrade NFLX to Hold from Underperform because, for the first time, the CEO stated NFLX will introduce a low-priced advtg tier over the next 18-36 months,” Martin said.

The analyst said offering a lower-priced option is necessary to compete with rivals like HBO, Paramount and also Apple Inc AAPL and Disney+ from The Walt Disney Company DIS.

NFLX Price Action: Netflix shares were trading 2.51% higher at $177.44 ahead of the close Tuesday.