Longtime Netflix Bear Analyst Turns Bullish on Streamer’s Q4 Fiscal Results

Wedbush Securities media analyst Michael Pachter is changing his tune on the future of Netflix. The Los Angeles-based analyst, previously bearish on the streamer’s prospects, now believes its recently-launched lower-cost ad-supported subscription plan should limit churn (non-renewing subs) going forward, while its content strategy appears to be “smoothing out with greater discernment” and a higher mix of original titles.

Michael Pachter

“We think Netflix is poised for significant free cash flow growth in the coming years,” Pachter wrote in a Jan. 17 note.

Indeed, while Wall Street consensus expects Netflix to miss its Q4 subscriber growth guidance of 4.5 million with 4.1 million new additions, Pachter expects the company to exceed guidance by as much as 300,000 subs at 4.8 million, including 1.5 million new North American subs.

“While our [North American] estimate may prove too high, we are confident that Netflix has seen monthly churn of more than 1 million gross subscribers in the region,” Pachter wrote.

The analyst is basing much of his optimism on a commissioned survey of 1,001 respondents, which found that 27% of respondents had switched to the ad-supported option. Notably, 9% of respondents stated that they tried the ad tier but switched back to the ad-free premium tier.

Pachter admits upfront to multiple “guesses” in the analysis regarding the starting point for the subscriber impact of Netflix’s ad-supported tier, which he believes will become more refined following the Jan. 19 fiscal call.

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“For now, we will simply state that it is easy for Netflix to achieve ‘positive or break-even’ results should current subscribers trade ‘down’ to the new tier,” the analyst wrote.

Pachter has made a career bucking conventional wisdom when it comes to Netflix. Instead of piling on the SVOD pioneer’s bandwagon, Pachter has pumped the brakes, questioning the service’s free cash flow and hidden costs, among other concerns.

That caution resulted in Pachter being named the stock picker of 2022 (out of 10,000 stock calls analyzed) for “outstanding ability to be able to valuate in a timely manner with both long and short calls” on Netflix’s stock price, according to AnaChart, a New York-based equity research support platform. Pachter hailed the call-out as “pretty flattering” in light of Wall Street’s cut-throat mindset.

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