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.

Analysts Say Netflix Will Miss Q4 Sub Growth Projection

Shares of Netflix dipped slightly Jan. 6 after two Wall Street analysts suggested the streaming behemoth could miss its fourth-quarter (ended Dec. 31, 2021) subscriber growth projection.

In a Jan. 6 note, J.P. Morgan analyst Doug Anmuth estimated the streamer will have added 6.25 million net new subs globally in the quarter when it reports financial results on Jan. 20. Netflix is projecting 8.5 million new subs added — a number that exceeds most of its competitors.

With the streaming pioneer firing on all cylinders, there are few metrics to critique the service on except subscriber growth — an easy target as the subscription VOD market reaches saturation in the United States.

WarnerMedia contends its HBO Max streaming platform was the top-growing service in 2021, ending the year with more than 73 million combined HBO and Max subs since launching in May 2020.

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The tally still trails Netflix’s market-leading global sub count of 213.5 million at the end of Q3 (Sept. 30, 2021), followed by Amazon Prime Video with 175 million, and Disney+ with 118 million.

“We believe fourth-quarter [subscriber] additions were lumpy as Netflix started the quarter with significant spike and buzz around ‘Squid Game,’ which was released in late September,” Anmuth wrote. “Download growth then slowed and ultimately declined into early December before picking up.”

Stifel analyst Scott Devitt also has sub growth concerns, compounded by what he claims were weaker Netflix app engagements in November and ongoing service price cuts in India — a market rival Disney+ dominates after acquiring local streaming service Hotstar in the 20th Century Fox acquisition.

Both analysts maintain buy ratings on the Netflix stock, while each trimmed the stock’s price targets, respectively. Indeed, Devitt reduced his sub growth projection from 10.1 million to 8.6 million — which exceeds Netflix’s estimate.

“Despite these concerns we believe the company executed well on its strategy [in the fourth quarter] releasing a slew of high-profile original content and making solid headway on its video games and visual effects initiatives,” Devitt wrote in a note.

Samba TV Files Paperwork for Proposed IPO

Samba TV, the San Francisco-based analytics company, Nov. 16 announced that it has filed a registration statement with the U.S. Securities and Exchange Commission in regards to a proposed initial public offering of shares of its common stock. The number of shares to be offered and the price range for the proposed offering have not yet been determined. Samba TV has applied to list its common stock on the New York Stock Exchange under the ticker symbol “SMBA.”

Samba TV tracks more than 46 million opted-in televisions globally, of which 28 million are in the United States.

Samba’s move to become a public company comes as the data tracking market heats up. In addition to Nielsen’s revamped streaming ratings, JustWatch, Adobe Analytics, and Parrot Analytics, track weekly data of the most-popular TV shows and movies streamed across myriad platforms.

BofA Securities and Evercore ISI are acting as lead book-running managers for the offering. Oppenheimer & Co. is also acting as a book-running manager. BMO Capital Markets, Craig-Hallum, Stephens Inc. and LUMA Securities are acting as co-managers for the offering.

FDA Approval of Pfizer COVID-19 Vaccine Boosts Movie Theater Stocks

It was a good day for publicly-traded movie theater stocks. Shares of AMC Entertainment, Cinemark (parent of Regal Cinemas) and Imax Aug. 23 at market closed up  almost 7%, respectively, as investors welcomed the U.S. Food and Drug Administration officially approving the Pfizer coronavirus vaccine.

The vaccine, which has been known as the Pfizer-BioNTech COVID-19 Vaccine, will now be marketed as Comirnaty (koe-mir’-na-tee), for the prevention of COVID-19 disease in individuals 16 years of age and older, according to the FDA. The vaccine also continues to be available under emergency use authorization, including for individuals 12 through 15 years of age, and for the administration of a third dose in certain immunocompromised individuals.

A recent Kaiser Family Foundation survey found that 31% of respondents cited FDA approval key to getting a vaccine. Government approval will also encourage private businesses to mandate vaccinations among their employees.

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The approval is a huge win for the theatrical industry, which has been trying to woo apprehensive moviegoers back into cinemas. The past weekend was the lowest domestic box office in two months, generating less than $60 million in ticket sales.

“While millions of people have already safely received COVID-19 vaccines, we recognize that for some, the FDA approval of a vaccine may now instill additional confidence to get vaccinated,” Acting FDA Commissioner Janet Woodcock, M.D., said in a statement. “Today’s milestone puts us one step closer to altering the course of this pandemic in the U.S.”

AMC CEO Adam Aron, earlier this month on the exhibitor’s fiscal call, welcomed increased vaccination rates among consumers — a trend that mirrors the world’s largest movie exhibitor’s ongoing efforts to sanitize theaters, ventilation and air filtration systems, in addition to ticketless movie screenings.

“Vaccination increasing is very important for AMC and for the movie theater industry generally,” Aron said on the conference call.

FuboTV Set to Join Russell 3000 Index

FuboTV, the sports-themed online live TV streaming platform, June 22 announced it is set to join the broad-market Russell 3000 Index on June 28, according to a preliminary list of index additions posted June 4.

Annual Russell indexes capture the 4,000 largest U.S. stocks, ranking them by total market capitalization. Membership in the U.S. Russell 3000 Index, which remains in place for one year, means automatic inclusion in the Russell 1000 Index or Russell 2000 Index as well as the appropriate growth and value style indexes. Russell determines membership for its indexes primarily by objective, market-capitalization rankings and style attributes.

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Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies. Approximately $10.6 trillion in assets are benchmarked against Russell’s U.S. indexes.

“We are pleased with the interest fuboTV has received from the investor community in such a short period following our listing on the New York Stock Exchange last October,” co-founder/CEO David Gandler said in a statement. “The addition of fuboTV to the [index] is an important milestone for the company as we stay laser-focused on defining a new category of interactive television while delivering significant shareholder value.”

In addition to online TV service, FuboTV is aggressively entering the online sports betting business — a market both Disney’s ESPN and Fox Sports are gravitating towards.