Wall Street Rejoins Netflix Bandwagon Following Streamer’s Strong Q3 Results

What a difference a day makes. Netflix’s year-long stint in Wall Street’s doghouse came to end Oct. 18 following the streamer’s joyful third-quarter fiscal results. The company’s stock is up almost 15% in Oct. 19 trading — the biggest share price increase since January 2021. The stock price had declined 60% through the first nine months of the fiscal year.

Wall Street firms JPMorgan Chase & Co., Deutsche Bank, Wedbush Securities, MoffettNathanson and KGI Securities Co. all upgraded their share price projections for Netflix after the streamer added 2.4 million subscribers in the quarter, with plans to add 4.5 million in the current fourth quarter, ending Dec. 31.

“‘Crawl, walk, run’ seems to be management’s mantra here,” JPMorgan Chase’s Doug Anmuth wrote in a note regarding the streamer’s pending ad-supported subscription plan.

Notably, Wedbush Securities’ media analyst Michael Pachter, a longtime bear on Netflix’s stock, contends the streamer is doing the right thing introducing a lower-priced subscription tier.

“We think Netflix made a great decision to launch an ad-tier, as growth had stalled in [North America] and was heading toward full market saturation in Europe, the Middle East and Africa,” Pachter wrote in an Oct. 19 note. “Its ad-tier should limit churn going forward, while its content strategy appears to be smoothing out with greater discernment and a higher mix of original titles.”

That said, Pachter doesn’t believe that Netflix’s stock price will return to its 2021 halcyon levels for many years, but the analyst is raising its share price target to $325 from $280.

“Our primary takeaway from the webcast is that even if ads are not directly accretive (and we think they will be increasingly accretive over time), the ad-tier should reduce churn,” Pachter wrote. “This will drive a re-acceleration of subscriber growth and contribute increasingly to free cash flow generation as Netflix continues to improve its content quality and lower overall spend per subscriber.”

Michael Nathanson, with the research firm MoffettNathanson in New York, contends Netflix is out of choppy waters for now, but that challenges remain as the streamer launches an ad-supported consumer option and attempts to reign in non-paying users.

“To the company’s credit, we are witnessing a rise of a new version of Netflix,” Nathanson wrote.

Post-Netflix AVOD Announcement: Everybody’s Got an Opinion

NEWS ANALYSIS — In the hours following Netflix’s announcement of an official debut date and pricing for its much-anticipated ad-supported subscription option was revealed, Wall Street analysts and media observers jumped upon the growing bandwagon of opinion on the news.

Netflix’s ad-supported tier is set to start Nov. 3 in 12 countries, and priced at $6.99 monthly in the United States.

“Netflix understands the streaming consumer incredibly well,” Ashwin Navin, co-founder/CEO of Samba TV, said in a statement. “The sweet spot for streamers looking to move to an ad-supported model is one that offers five minutes or less of advertising per hour and reduces the cost of their subscription by half. This new tier threads that needle nicely.”
Netflix’s first-mover advantage launching an ad-supported plan, comes more than a month ahead of a similar option on Disney+.
While Netflix will be able to better monetize existing subscribers transitioning to the lower-priced plan, industry estimates suggest 90% of current non-Netflix subs watch other ad-supported streaming content.
“This massive addressable market has no aversion to watching ads in exchange for free or reduced priced content and are prime candidates to turn to Netflix’s new ad-supported tier,” Navin said.
Michael Pachter, media analyst with Wedbush Securities in Los Angeles, said a recent company-conducted survey of Netflix subscribers found that the new ad-supported tier would keep them around the service.
“Our survey demonstrates that Netflix has an opportunity to limit churn in the coming months by offering its ad-supported tier to those looking to quit the service,” Pachter wrote in an Oct. 14 note. “In fact, of our respondents, those most likely to opt into the ad-supported tier are those who would have otherwise quit. The group of respondents that said they were unlikely to pause or cancel their subscriptions were much less likely to switch to ads.”
Analyst Brian White with the investment firm Monness, Crespi, Hardt, contends the announcement could reverse what has been a nightmare of fiscal year for Netflix. White, who believes Netflix added 1 million new subs in the third quarter (ended Sept. 30), says the new ad-supported tier will help the service adapt to a more challenging market.
“Although Netflix continues to deliver a strong slate of content, and the stock’s valuation has become unassuming after a sharp decline, the company’s business is under siege on multiple fronts,” White wrote in a note. “[Whether Netflix has] the time necessary to successfully monetize new initiatives is unclear, and we believe the darkest days of this economic downturn are ahead of us.”
In the U.K., where Netflix is also launching ad-supported service, Bridget Hall, planning director for the Americas at M&C Saatchi Performance, said the bar has been set high in online advertising and its ability to offer marketers targeted audiences.
“Advertisers expect robust targeting and advanced measurement for cross-device conversion tracking,” Hall wrote. “Initial speculation is that the Netflix CPMs are high, and the targeting may not be as advanced.”
Stefan Lederer, founder/CEO of Bitmovin, contends consumers won’t be as willing to pay for content with commercials.
“Our recent research suggests that in a paid subscription model, the majority (67% among 18- to 35-year-olds) would rather pay that little bit extra to remove ads,” Lederer said. “Most viewers (60%) are happy to tolerate ads when it comes to free streaming services, however it seems if paying for a subscription, no matter the cost, they expect ad-free content.”
Not so fast, says Tej Rekhi, VP product at Peach, who argues Netflix’s entrance into ad-supported content with significantly up the AVOD market profile among consumers.
“Netflix’s ad-supported tier has come at a really good time,” Rekhi wrote. “As consumers start to feel subscription fatigue, they now have an ad-funded model option for their wallets. This is going to accelerate the [connected TV]/AVOD landscape, creating bigger opportunities for more addressable content.”
Netflix reports third quarter (ended Sept. 30) fiscal results Oct. 18.

NEWS ANALYSIS: Redbox’s ‘Meme Stock’ Rollercoaster Ride Continues

Another day, another premarket rally for Redbox Entertainment shares, which surge and drop like a rollercoaster amusement ride. The legacy kiosk disc rental company’s shares have become a meme stock, subject to the whims of mob rule among day traders and short squeezers transacting more than 20 million shares daily — and little to do with the company’s fiscal fundamentals.

The ongoing drama plays out against the backdrop of a corporate merger that would see AVOD operator Chicken Soup for the Soul Entertainment acquire Redbox for $375 million. With Redbox shares up more than 12% in June 16 trading, the company’s market cap is approaching $500 million — making the deal appear undervalued on paper.

Earlier this month, Redbox, in an effort to raise funding for capital expenses, issued a regulatory filing for separate warrants to acquire millions of new Class A Common stock. The move resulted in a modest bump in the share price and was seen as a positive by B. Riley Eric Wold.

“Given our continued belief in the opportunity for the Redbox kiosk network to address the ongoing content needs of the target demographic (e.g., late technology adopters and price-sensitive consumers) — especially in an environment where SVOD platforms are beginning to hit a subscriber wall — we saw the value of additional financing to help [Redbox] get past the current content drought,” Wold wrote in a note.

Wold contends the extra financing could expedite the “digital growth strategies that have been put on hold or delayed as management sought out additional liquidity options.”

Regardless, six days later, Redbox disclosed it would be giving separate bonuses of $550,000, $300,000 and $250,000 to CEO Galen Smith, chief digital and strategy officer Jason Kong, and chief operating officer Michael Chamberlain, respectively, should they remain with the company following consummation of the Chicken Soup for the Soul Entertainment deal.  The executives still get the bonuses if they are terminated post-ownership change.

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Goldman Sachs Puts Netflix Stock Rating Up for ‘Sale,’ Citing Recession and Competition

Wall Street powerhouse Goldman Sachs June 10 shifted its “neutral” rating on Netflix shares to “sell,” lowering its price-per-share target on the subscription streaming pioneer to $186 from $265.

Netflix shares closed June 9 at $192.77 per share. The stock, which is down more than 10% in pre-market trading, has declined 72% since a market high of $690.31 per share on Oct. 21. 2021.

Sachs analyst Eric Sheridan, writing in a note, cited ongoing inflationary concerns and rising competition from Disney+, HBO Max and Paramount+, among others, for putting the brakes on Netflix’s stock.

“We [also] have concerns … on demand trends (both in the form of gross adds and churn), margin expansion, and levels of content spend and view Netflix as a show-me story with a light catalyst path in the next six to 12 months,” Sheridan wrote.

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The analyst said he is lowering Sachs’ 2022-23 revenue estimates for Netflix to incorporate a greater probability of a weaker macro environment going forward, which includes greater subscriber losses.

“More specifically, we modestly lower our paid streaming subs across every region but incorporate higher [average-revenue-per-user] levels in the U.S. in 2024 and beyond to reflect Netflix’s initiatives around its ad-supported tier and password sharing,” Sheridan wrote.

Analyst Gives Thumbs-Up to Netflix Ads, Shrugs Off Account Sharing

Following the market’s outsized reaction to Netflix’s underwhelming first quarter results, including a net loss of 200,000 subscribers, the SVOD pioneer put in motion two initiatives designed to generate incremental revenue: Charging subs extra for sharing accounts and a less expensive ad-supported subscription plan.

Selling ads on the backs of Netflix’s 220 million global subscribers is being embraced by Wall Street as a legitimate revenue driver. Jason Bazinet, media analyst with Citi, believes the move could jumpstart subscriber growth and improve the fiscal bottom line.

“We believe an ad-based tier — which we expect in 2023 — will allow Netflix to resume sub growth and help narrow the ~$5 billion gap between [free cash flow] and net income,” Bazinet wrote in a note.

Citi analyst Jason Bazinet

Free cash remains a bone of contention among some Netflix analysts (notably Wedbush Securities’ Michael Pachter] who suggest the service spends too much money on content, among other costs.

Bazinet believes Netflix could generate $10 monthly from ad-supported U.S. subs and $3 monthly worldwide. The analyst says the ad-supported subscription plan could yield upwards of $3.6 billion in additional free cash flow from new subs, and $3.1 billion should existing subs downgrade to the estimated new $5.99 monthly ad-supported price point.

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“[This would] still generate incremental revenue from basic subs that spin down to a lower cost version,” Bazinet wrote.

The analyst doesn’t give much support to Netflix idea to charge existing subs an incremental fee when sharing account passwords. The concept is currently being tested in select markets globally.

The move is “unlikely to improve [churn] beyond current levels,” Bazinet wrote.

A separate report by The Information suggested Netflix could bump revenue up 21% with an ad-supported subscription option.

Analysts Weigh in Following Netflix’s Black Tuesday Financial Report

On the heels of Netflix’s underwhelming first-quarter fiscal results, which included the loss of 200,000 subscribers, Wall Street reacted decisively, shedding $40 billion off the streamer’s market valuation in aftermarket trading April 19.

Netflix shares continued to slide April 20, down more than 35% in midmorning trading. Indeed, more than 80 million shares traded hands before noon — almost 10 times the daily average — as investors looked to cut losses as Netflix said it expects to lose 2 million subs in the current quarter ending June 30.

Among analysts, the consensus suggested a collective “told-you-so” mindset, with experts contending Netflix shares have been overheated for a while. Even co-founder, co-CEO Reed Hastings sending up a trial balloon about a future lower cost ad-supported subscription plan did little to offset the Wall Street bears.

“It is likely that Netflix is ‘dead money’ for at least another quarter,” Michael Pachter, Wedbush Securities media analyst and longtime Netflix bear, wrote in a note.

Pachter said the decline in subscribers coupled with guidance for an even greater decline is likely to keep optimists away until there is some evidence that subscribers will once again grow.

“Should Netflix roll out an ad-supported tier, the stock will likely respond favorably, but we expect management to test the concept for at least several quarters before announcing a major change,” Pachter wrote, adding he would “remain on the sidelines” until there is evidence that Netflix is a “growth company” once more.

Eric John, VP of media center for IAB, said he is surprised Netflix waited so long to consider an ad-supported option — especially considering Disney’s decision to offer the option this year.

“The streaming business is a hit-driven enterprise where consumers expect value every time they open the app, and when the cancel button and the competition is a click away,” John said in a statement. “The cards were on the table when we saw in their Q1 earnings letter: ‘Added competition may be affecting our growth some.'”

J. Christopher Hamilton, assistant professor of television, radio and film at Syracuse University, said the nosedive in Netflix market valuation stocks is not surprising, and that quick action is needed to reverse this course.

“Netflix is no longer the disrupter it used to be because its tactics have been duplicated by its competition (binge viewing, premium programming, data analytics, etc.),” Hamilton said. “The company is still in the lead in terms of subscribers, but it won’t hold that for long if they don’t innovate quickly.”

But innovation in today’s streaming ecosystem includes new challenges such as sports rights, video games and gambling.

Andre Swanston, SVP of media  and entertainment at Transunion, said Netflix in recent months has failed to keep up with evolving consumer demands, which he said include live sports. Competitors Paramount+, Amazon Prime Video, Peacock, HBO Max and ESPN+ are all incorporating growing amounts of live sports.

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“Netflix only has one touchpoint to the consumer,” Swanston said. “Its competitors have a better understanding of the consumer’s lifestyle (ecommerce, live events, sports, etc.,) and how to best engage with them.”

The analyst believes the streamer’s foray into mobile gaming will go nowhere. Swanston says Netflix’s gaming competitors have market advantage, legacy titles, own more publishing studios, and exhibit a clear metaverse strategy.

“It is not yet clear how [Netflix’s gaming] strategy will actually come together,” he wrote. “Just because they have popular shows/movies doesn’t necessarily mean those titles will translate to popular games.”

Warner Bros. Discovery Media Company Officially Opens for Business

The new Warner Bros. Discovery media giant April 11 officially began as a publicly traded company when the market opened, with the stock trading at $24 per share with a market capitalization of more than $12.4 billion. Some analysts have a stock valuation target at $40 per share.

The $43 billion merger between Discovery and AT&T’s WarnerMedia business unit closed April 8 with Discovery CEO David Zaslav assuming the CEO position at Warner Bros. Discovery, which includes Warner Bros., HBO, HBO Max and Turner (TBS, TruTV, TNT, CNN), discovery+, HGTV, Magnolia Network and Animal Planet, among other properties.

“I am confident that our collective energy and genuine love for these businesses and brands will build the world’s most dynamic media and entertainment company,” Zaslav wrote in an April 8 company memo.

WarnerMedia CEO Jason Kilar, Warner Bros. CEO Ann Sarnoff and HBO Max boss Andy Forssell all exited the company last week.

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Zaslav reportedly is making the rounds across the company nationwide this week with stops planned in New York, Atlanta and Los Angeles — and a message how he intends to trim $3 billion in synergistic cost savings.

On Wall Street, analysts remain upbeat about the fiscal prospects for Warner Bros. Discovery, with Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, contending the HBO Max subscription streaming service is now among the top four SVOD platforms on the market.

“At the end of the day, the HBO Max/Discovery product is going to be in the top four streamers, along with Disney, Netflix, and Amazon Prime Video,” Ranganathan told Yahoo! Finance. At the same time, some observers worry whether the new media company can turn a near-term profit, including generating free cash.

Indeed, HBO Max, which ended 2021 with more than 73 million combined HBO subscribers, is expected to generate a $1.5 billion pre-tax loss this year.

“[Max] is at the very beginning of its growth curve,” Jessica Reif, research analyst at Bank of America, told Yahoo.

Redbox Shares Leap 50% in Value, and No One Knows Why

Redbox Entertainment shares did a strange thing on March 18. The stock catapulted more than 50% in value at the close of the business day after climbing from $1.82 per share at the opening bell, to $3.48 in midday trading, and closing at $2.69 per share.

Through the course of the business day, more than 22 million shares traded hands — exponentially higher than the average daily volume of 984,000 shares traded. The home entertainment icon’s stock continued its upward trajectory March 21, with shares up 4.5% in mid-morning trading on more than 3.2 million shares changing hands

Such movement typically is the result of some company news or outlying market conditions impacting the stock. But there wasn’t any news. Nothing. Redbox Entertainment management hasn’t mentioned much since presenting at the 2022 Virtual ICR Conference on Jan. 11, where CEO Galen Smith again reiterated the company’s strategy of targeting DVD kiosk renters and late streaming adopters with a one-stop-shop for their home entertainment needs.

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Redbox’s lone bad news has been an ongoing market shortage of new release movies from the studios due to the pandemic, among other supply issues.

Michael Pachter, senior media analyst at Wedbush Securities in Los Angeles, covers Redbox and is perplexed by Friday’s stock movement.

Could it be short sellers hoping to cash in when shares plummet? Day traders looking to turn Redbox into a meme stock where a company’s stock gain sudden popularity with individual investors on social media platforms and goes through the roof in value?

“I have no idea,” Pachter said in an email.

Reed Hastings Buys $20 Million Worth of Netflix Stock to Slow Streamer’s Market Stumble

With shares down more than 37%, Netflix co-founder/co-CEO Reed Hastings on Jan. 28 acquired 51,440 shares of the SVOD behemoth, paying $388.83 per share, or $20 million — the executive’s largest inside stock purchase since 2010, according to a regulatory filing.

Prior to the purchase, Hastings owned more 8 million worth of Netflix shares, making him one of the company’s largest stockholders.

The move was simple: Show executive confidence in Netflix and help slow the market selloff, which began even before the streaming giant missed slightly on its fourth-quarter subscriber growth projections, and estimated just 2.5 million sub growth in Q1, ending March 31.

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Netflix, which has seen its shares reach more than $612 per share in valuation earlier this month, closed Jan. 28 priced at $384 per share.

The lower stock price prompted Wall Street hedge fund operator Bill Ackman to acquire 3.1 million shares, valued at more than $1 billion. The Pershing Square Capital Management owner said the hedge fund was “all-in on streaming video.”

“Many of our best investments have emerged when other investors, whose time horizons are short term, discard great companies at prices that look extraordinarily attractive when one has a long-term horizon,” Ackman wrote in a note to shareholders.

Analysis: As Netflix Stumbles, So Does Streaming Video Market

NEWS ANALYSIS — Netflix’s scant miss on fourth-quarter subscriber growth projections was one thing, but when the SVOD pioneer and industry heavyweight revealed a meager Q1 2022 sub growth estimate (2.5 million) that was less than half Wall Street’s guidance — the stock selloff took off. Stoking the fire: Netflix’s estimated 10% revenue growth in 2022 is the lowest in 10 years — and also below analysts’ projections.

Red Notice, Netflix’s most-watched movie ever, was now a fiscal siren to investors.

Netflix shares lost nearly 20% of their value in premarket Jan. 21 trading, falling about $100 below the streamer’s previous 52-week low of $508 per share. On paper, Netflix lost around $45 billion in market valuation — a fiscal shock wave that reverberated throughout the streaming video market.

Wall Street banks Morgan Stanley, KeyBank and Barclays all downgraded Netflix shares. Premarket share prices for AT&T, which owns HBO Max, Roku, Disney (Disney+) and Discovery (Discovery+) all declined in low single-digit price-per-share drops.

“The [Netflix] share price is plummeting, and the numbers say a comet is on a collision course with its business model,” wrote analyst Rick Munarriz with The Motley Fool. “The competition is getting stronger, and Netflix doesn’t have the pricing elasticity it used to.”

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Lost in the frenzy is that Netflix had one of its best quarters for content. In addition to actioner Red Notice, co-staring Ryan Reynolds, Gal Gadot and Dwayne Johnson, and satire Don’t Look Up, co-starring Jennifer Lawrence and Leonardo DiCaprio, Netflix’s Korean series, “Squid Game” generated the streamer’s biggest viewership ever at more than 2 billion hours in the first 28 days.

With a new “Squid Game” series in development, in addition to a new season of “Bridgerton,” as well as another Ryan Reynolds actioner, Netflix’s brass appeared at a loss to explain away the low sub growth going forward.

“It’s tough to say exactly why our acquisition hasn’t kind of recovered to pre-Covid levels,” CFO Spencer Neumann said on the fiscal webcast. “It’s probably a bit of just overall Covid overhang that’s still happening after two years of a global pandemic that we’re still unfortunately not fully out of, some macroeconomic strain in some parts of the world, like Latin America, in particular.”

Neumann appeared to ignore the gorilla in the room: Market saturation. With its SVOD rivals ramping up their own original content spending, and the majority of consumers now subscribing to upwards of four+ streaming services, the market for new sub growth is slowing.

“This translates to more choice for consumers, who are growing concerned with the aggregate costs of their streaming subscriptions,” Mike Proulx, VP of research for Forrester Research, wrote in a note.

Netflix co-CEO/chief content officer Ted Sarandos, on the fiscal call, tried to calm the waters, saying that viewer engagement for the streamer’s original content remained strong and growing.

“We didn’t see a hit to our engagement,” Sarandos said. “We didn’t see a hit to retention — all of those things that would classically lead you to looking at competition.”

Indeed, Wall Street’s reaction may be a wakeup call to the SVOD industry, but not an obituary on streaming video.

“In the end we think the Netflix flywheel is still working, it is just operating at a slower pace given the massive pull forward of demand enabled by pandemic shutdowns, and over time we expect normalization in subscriber results and for the stock to work,” wrote Jeff Wlodarczak, analyst with Pivotal Research Group.