Netflix Analyst Gains Conviction On Longer-Term Upside Potential From Ad Revenue, Upgrades Stock

Macquarie analyst Tim Nollen upgraded Netflix, Inc NFLX to Neutral from Underperform with a price target of $230, up from $170, as he gained confidence in Netflix's ability to grow through advertising.
Nollen is now more confident in the company's longer-term upside potential.
He estimates Netflix with ads could generate up to $3.6 billion in U.S. and Canada sales by 2025 and $8.5 billion globally, adding $2 billion in total incremental revenue.
Nollen assumed that if Netflix were to ramp up its international ad sales efforts that quickly, considering the ad tier attracts an additional 10% to its sub base in EMEA, LatAm, and APAC.
While this seems like a large number, coming from zero, but assuming a lower subscription price for the service and the assumption that a third of all users migrate to the advertising tier, it equates to a total incremental revenue figure of $1.1 billion, only a 7% increase from estimates before factoring in ad growth.
While Nollen's assumptions appear aggressive, they demonstrate both the ad opportunity and corresponding offset to ARPU. In his model, international ad tiers only boost incremental revenue by $1 billion or 4%.
He kept his 2022E-24E estimates intact but raised the 2025E estimates.
Price Action: NFLX shares traded higher by 4.73% at $228.70 on the last check Wednesday.
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