Netflix seeing slow subscriber growth from new ad-based plan
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Netflix's (NASDAQ:NFLX) new advertising supported plan is not leading to a surge in subscribers, but investment firm Oppenheimer is positive on the streaming giant, due in part to the new tier and improvements in its content.
The new ad-supported plan, which costs $6.99 per month, accounted for 9% of new Netflix sign-ups in the U.S. in November, The Wall Street Journal reported, citing data from subscription analytics company Antenna. The firm added that 57% of those subscribers to the ad tier were people who re-joined the service, while 43% were those who downgraded from other plans.
Netflix (NFLX) shares shed less than 1% as trading progressed on Tuesday.
Several other streaming services, including Warner Bros. Discovery (WBD) HBO Max, Walt Disney's (DIS) Disney+ and Hulu, Comcast's (CMCSA) Peacock and Paramount's (PARA) (PARAA) Paramount+ all offer ad-supported plans.
Netflix's (NFLX) ad-supported plan was launched in the U.S. in early November. Later that month, co-CEO Reed Hastings admitted the company should have gotten into advertising sooner.
Despite the concerns over Netflix's (NFLX) ad-tier, investment firm Oppenheimer reiterated its outperform rating and $365-a-share price target on the media giant, noting that its stock will likely be driven by subscriber growth.
Analyst Jason Helfstein said in a research note that it was "not surprising that [Netflix's] ad launch has some hiccups," and that the company doesn't want to flood subscribers with so many ads that their viewing experiences become overly disrupted.
Helfstein added that advertisers "are also shifting non-holiday specific unspent funds" to the first quarter of 2023, and that Netflix's (NFLX) ad-tech partner, Microsoft (MSFT) "is likely paying minimum guarantees, [and] therefore, we don't see an impact to [Netflix's] revenue in the short term."
Helfstein also noted that Netflix's (NFLX) content slate in the fourth quarter has been "strong," and has accounted for 80% of Nielsen's top 10 weekly hours in the quarter up to November 20. That period has included strong reaction to shows such as Wednesday and Monster: The Jeffrey Dahmer Story, both of which are among the streamers most-watched shows of all time.
Additionally, Helfstein said that the data from Antenna showed that customer churn has increased as new entrants entered the market and platforms start to prioritize profitability. However, Netflix's (NFLX) churn is still well below that of the broader industry and with a pull-back in marketing by its competitors, Netflix (NFLX) should benefit.
Earlier this month, investment firm Citi listed Netflix (NFLX) as one of its top bull contrarian picks for 2023.