Decoding Netflix's Ad Strategy: A Review by Analyst Post Upfront Presentation

  • Oppenheimer analyst Jason Helfstein had an Outperform rating on Netflix, Inc NFLX with a price target of $415
  • Wednesday afternoon, Netflix management hosted their Upfront presentation and Q&A with analysts. 
  • Given the lack of prior disclosure, the streaming giant has been a top pick, and the analyst is incrementally more positive on the ad tier progress. 
  • Most notably: 1) ad tier has ~5 million MAUs, significantly more than the 1 million reported by third parties; 2) represents 25% of new subscribers in respective geographies; 3) viewed 80% on TV; and 4) average age of 34, all of which helps support the premium ad prices. 
  • In addition, Netflix viewers are 4 times more likely to engage with an ad on Netflix vs. other streaming platforms and 4.5 times vs. linear TV. 
  • Ad product development includes frequency caps and the ability to sponsor Netflix series launches and purchase guaranteed inventory from NFLX's Top 10 shows. 
  • Netflix is also adding more third-party verification tools, including Nielsen ONE, which will give advertisers de-duplicated audience measurement metrics and a partnership with EDO, Inc., a TV outcomes measurement platform. 
  • Interestingly, Netflix believes it can bypass the demand-side platforms (DSPs) for campaign optimization. 
  • While still early, executives believe advertising revenue will grow to +$3 billion over time, and they also confirmed press reports that $300 million in opex reduction is underway
  • Netflix expects to launch Paid Sharing in additional markets before quarter-end, with increased noise around higher churn from third-party data providers.
  • Price Action: NFLX shares traded higher by 9.49% at $372.22 on the last check Thursday.
  • Photo by Tumisu via Pixabay
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