Back in early January 2022, when Netflix seemingly had no use for ads and subscriber growth still felt always inevitable, the company’s stock price hovered in the $500-per-share range. Sure, that was down from when it very briefly sniffed $700 three months earlier, but there was no need to panic.
Little did the public (and the media) know that the “Netflix Correction” — the streamer’s first ever loss of subscribers and projections to lose even more — was brewing. On January 20, 2022, we got our first sense that trouble was in the air via a cautionary shareholder letter: Netflix forecast it would add *just* 2.5 million subs that quarter.
It ended up losing 200,000 subs by the end of March. And then it lost nearly a million more by the end of June. Suddenly, those same NFLX shares were trading for $200.
Since then, the once-invincible streamer clawed back to prominence with the launch of an ad-supported tier, greatly improved content, and a crackdown on password borrowers. Today, Wall Street rewarded its efforts — sort of.
On Wednesday, two separate media analysts, Doug Anmuth with J.P. Morgan and Steven Cahall with Wells Fargo, significantly upped their own price targets for Netflix shares. J.P. Morgan raised its NFLX target from $380 to $470; Wells Fargo jumped from $400 to $500.
Shares closed this afternoon 23 cents shy of Wells Fargo’s previous price target. The other $100 rests entirely with its potential.
The paid-sharing program that Netflix began rolling out last month in the U.S. is the biggie: J.P. Morgan now estimates that of the 100 million people worldwide that Netflix says are mooching off someone else, 14 million will begin ponying up — either as add-ons or as new accounts — by the end of 2023. Next year, it’ll hit 26 million. By 2025, one-third of the freeloaders will have become monetized.
Anmuth believes what he calls the “monetized borrowers” will end up “evenly split between new subscribers and extra members.” All told, we’re talking a couple extra billion dollars of annual revenue in the coming years. Well, really, the analysts are the ones talking about that. We, like the investors, are listening intently.
In its own note to clients (and obtained by IndieWire), Wells Fargo mapped out the ways in which Netflix can compete in an increasingly thorny ad market. Netflix in May said it has roughly five million users on the ad-tier. As password sharing goes into effect, a number of borrowers may opt to just sign up for their own ad-supported account, which is $1-a-month cheaper than having someone else be billed for you as an ad-free add-on.
If Netflix-with-ads can scale to 20 million users, Wells Fargo projects that would put them in Hulu’s ballpark in terms of ad-impressions and dollars. And remember: this is merely a secondary revenue stream.
To get there, Netflix will likely have to ramp up live programming. It has experienced success in the space with Chris Rock’s live stand-up comedy special and failure with the “Love Is Blind” reunion show. But if Amazon Prime Video can seamlessly stream live awards shows and sports programming, there’s no real reason Netflix couldn’t get there. Cahall pitched WWE’s “SmackDown” and/or NASCAR races as a start.
It’s a shortcut to subscriber growth that could come at a cost: those high industry-high CPMS (the cost-per-thousand ad impressions).
“[Netflix] is going to need to gain a lot more users to solve the problems of major advertisers, and through this process it will almost certainly have to curtail its ad pricing in order to give advertisers the scale they need at the prices they can afford,” Cahall wrote. “We think over time Netflix will see its ad inventory sold across a price range, some of which is premium and some of which isn’t.”
