Netflix edges up as Benchmark says it's too early to gauge ad efforts
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Netflix (NASDAQ:NFLX) shares nudged upward Friday as investment firm Benchmark said it was "too early" to assess the impact of the media giant's advertising ambitions.
Analyst Matthew Harrigan, who has a sell rating on Netflix (NFLX), noted that the launch of the advertising tier was "rushed with unrealistic, above peer pricing" and with limited testing in an effort to gain entry into the advertising-video-on-demand market, but it is likely to benefit the company in the long run.
Harrigan said that Netflix (NFLX) is showing "a strong element of hubris" regarding it's $6.99-a-month ad-supported subscription plan. However, Harrigan added that it's too early to fully assess if the new option will cannibalize the company's full priced streaming video tiers and its impact on "advertising revenue benefits and incremental member growth."
"Although there is a strong element of hubris in Netflix pricing advertising well above CPMs for AVOD rivals we do feel it is premature to write-off Netflixâs $6.99 AVOD tier," Harrigan, who also boosted his price target to $225 from $162, wrote in a note to clients. "
On Thursday, it was reported that Netflix (NFLX) had issued refunds to its advertisers after it may have missed some viewership guarantees.
Following the report, Netflix (NFLX) issued an emailed statement to Bloomberg and said it was pleased with the "successful launch" of its advertising subscription tier.
Harrigan added that the new ad tier could raise Netflix's (NFLX) stock price between $21 and $45 a share, depending upon how the company operates in the "hypercompetitive" market. Harrigan noted that the Disney Bundle, which includes Walt Disney's (DIS) Disney+, Hulu and ESPN+, along with Amazon's (AMZN) Prime offering are both a "disadvantage" for Netflix.
Earlier this week, investment firm Jefferies was cautious on Netflix's (NFLX) content strategy, especially with its new ad-supported tier just starting to ramp.