Netflix gains 5% as Atlantic upgrades on ad opportunity
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Netflix (NASDAQ:NFLX) is leading big Communications stocks gainers, up 5.3%, as Atlantic Equities is the latest to upgrade based on bullishness from the streamer's upcoming ad-supported service.
The firm boosted its rating to Overweight, from a previous Neutral.
An "extremely material" lift from the advertising hasn't shown up in consensus forecasts, analyst Hamilton Faber says: "We believe that sell-side estimates include little in the way of advertising benefits at present, although given the performance of the stock, we believe the buy side is ahead."
In fact, Netflix could generate average revenue per user from advertising of some $26 per month - a level that more than triples what Disney is getting out of veteran ad-supported service Hulu (DIS) (CMCSA), Faber says.
Some subscribers may downshift from their existing ad-free plans, but that would still be accretive to overall ARPU, he said.
As for overall impact, incremental ad revenue could hit $6.7B in three years, which would add up to a 7% annual boost, Faber said.
The firm has raised its price target to $283 from $211, now implying 20% upside.
Netflix (NFLX) is also continuing its push into gaming, with plans for its first internal game studio.