Guggenheim reiterates Netflix as Buy, modeling advertising revenue boost
Mario Tama/Getty Images News

Guggenheim has reiterated its Buy rating on Netflix (NASDAQ:NFLX), noting that the new plan to add an advertising-supported tier raises the long-term revenue outlook.
Its reduced its price target, though, expecting higher near-term costs from the ads rollout.
Analyst Michael Morris is assuming a domestic Netflix launch of ad support in the first quarter of 2023, with a global rollout in the two years following that - EMEA in late 2023, Latin America in 2024, and Asia Pacific in 2025.
The move should support further market penetration of Netflix service - to about 50% of broadband homes in 2030, vs. 34% now, Morris says. Guggenheim expects an ad-supported tier to be priced around 30% of premium-tier pricing (in the U.S./Canada, premium plans are at $19.99, suggesting about $6/month for ad support) - and for total ad-supported average revenue per user hitting about 90% of premium ARPU.
"We expect premium subscribers to remain the majority of the base through 2030, with the ad-supported tier penetration reaching approximately one-third of the subscriber base," Morris writes.
Moreover, including the ad tier suggests total company revenue "approaching $75 billion by 2030," he says.
With near-term costs looking higher, the firm has cut its 12-month price target to $265 from $350. Netflix is rebounding today, up 5.8%, so that target currently implies 30% upside.
Morris also says that with Netflix opportunistically leveraging existing market technology for ad sales and delivery, The Trade Desk (NASDAQ:TTD) is set to benefit from the expanded connected TV inventory. The Trade Desk stock (TTD) is up 5.2%.
An earlier report notes, meanwhile, that Netflix may be sharpening its feature-film focus to highlight fewer, bigger and better projects.