JPMorgan Sees Netflix Becoming a Big Advertising Company, Shares Will Hit $750
Netflix will become a major advertising company in the coming years, according to JPMorgan. On Friday, the firm reiterated its outperform rating on the name, calling it a top pick with the potential to see mid-teens revenue growth this year and next, expanding margins and generating free cash flow growth. The firm’s $750 price target implies a 9% upside from Thursday’s close. Analyst Doug Anmuth cited projections of scale and monetization by 2025, projecting that the number of subscribers to the advertising tier will reach 31 million by the end of the year and 42 million by the end of next year. He estimates that the company’s advertising revenue, excluding subscriptions, will reach at least 10% of total revenue by 2027. “Although the advertising tier is currently a drag on the overall company, [average revenue per member]“We expect a focus on ad formats, NFLX’s in-house ad tech platform, and programmatic and measurement partnerships to drive higher monetization,” the analyst said in a note Friday. “There are challenges as NFLX is building its Ad Tier from scratch, there are only a handful of robust, scalable digital ad platforms, and advertising is not in NFLX’s DNA, but we expect monetization to increase through strong execution over the years,” he said. Looking ahead, JPMorgan expects the company to achieve significant scale across each ad market next year. To date, Netflix has about 278 million subscribers globally, and the company’s ad tier has generated more than 45% of total subscriptions across ad markets. With the streaming giant demonstrating the “attractiveness” of its $6.99 ad tier in particular, the firm also predicts that the majority of U.S. subscribers who are on the basic plan — which JPMorgan notes is around 15 million — will move down to that tier. The changes to plans and pricing in particular, as well as live event and subscription content, are what could make the increase scale, Anmuth said. Netflix rolled out its ad-supported plan in November 2022 to boost revenue and subscribers after losing subscribers for the first time in more than 10 years. The company also began cracking down on password sharing months later as part of its efforts. Netflix’s stock has soared this year, up more than 41%. NFLX YTD Netflix, year to date
