J.P. Morgan: Netflix to Generate $2.7 Billion in North American Ad Revenue by 2026

Netflix is set to launch an ad-supported subscription streaming VOD option before the end of the year. New data from JP Morgan contends the new pricing plan could generate upwards of $2.7 billion in incremental revenue by 2026 in the U.S. and Canadian markets combined.

J.P. Morgan analyst Doug Anmuth, in a note to clients, believes Netflix’s ad-supported subscription tier could generate 7.5 million subscribers through 2023, generating around $600 million in incremental revenue. That sub tally could reach 22 million subscribers by 2026, generating about $2.65 billion in sales. The analyst said the ad-supported subscribers would reflect a 19% incremental growth in North American subs. Others suggest Netflix’s lower-priced ad-supported tier would cannibalize its existing ad-free subscriptions.

“The [North American] ad-supported tier could generate overall revenue of $1.15 billion in 2023 and $4.6 billion in 2026, including incremental revenue of $350 million in 2023 and $2.3 billion in 2026, which would drive 2% upside to our current 2023 estimates and 13% upside to 2026,” Anmuth wrote.

Last month, The Wall Street Journal reported that Netflix was telling advertisers that it expects to generate 40 million ad-supported viewers by the third quarter of 2023, including 13.3 million viewers in the U.S.

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Specifically, the streamer is eyeing 4.4 million ad-supported viewers globally by the end of 2022, including 1.1 million in the U.S.

Evercore ISI analyst Mark Mahaney contends that Netflix’s ongoing price sensitivity among its subscribers portends to a strongly favorable response to ad-supported streaming.

“We believe the global streaming market remains attractive,” Mahaney wrote in a note. “Netflix is the proven market leader, its management team is highly experienced and has a strong vision and execution record. The business model has proven its operating margin leverage and is in the process of generating substantial (free cash flow). There is a clear catalyst on the horizon, and valuation is intrinsically attractive.”

Netflix reports third-quarter fiscal results (ended Sept. 30) Oct. 18.